MOST ANALYSTS EXPECT this holiday shopping season to be another dud. But retailers have one edge they didn’t have last year: they know it’s coming.

Few predicted last year’s market meltdown and shopper malaise would take as big a toll on retail sales as it did. (Holiday retail sales fell to $441.97 billion, a 3.4% drop below the prior year – and the first decline recorded by the National Retail Federation since data tracking began in 1992.)

Retailers often depend on robust holiday sales to propel them into the black for the year. When shoppers didn’t show, stores either shuttered or discounted deeply to rid their shelves of excess merchandise.

“Retailers were caught flat footed,” says Sapna A. Shah, a principal at Retail Eye Partners, a research and consulting firm in New York. “They weren’t expecting the financial markets to collapse and consumers to be scared of spending money,” she says. This year, the NRF is calling for holiday retail sales to decline another 1%. But most retailers will be better prepared, Shah says.

Here’s how they’re bracing themselves:

Start the season earlier

Andrew Jacobs, the owner of JAM Paper & Envelope, a Tenafly, N.J.-based chain of gift-wrap, stationery and packaging stores, predicts his stores’ holiday sales will fall 10% to 15% this year – not quite as steep as the roughly 20% drop last year. Knowing that shoppers are going to spend conservatively again this year has allowed him to plan better, Jacobs says. He is ordering less holiday merchandise; he’s also displaying sale items and decorating his store for the holidays earlier than usual.

“It’s almost Halloween, but if Christmas music was playing on the radio, we’d have it on,” says Jacobs, who hopes that his display of holiday wrapping, Christmas cards and red and green ribbons will promote early holiday buying. “We’ve held off making purchases. But the more people start buying, the more we start buying as well.”

For retailers, jumpstarting the holiday is a matter of righting their balance sheets, says Ronald Stampfl, a marketing professor at San Diego State University. “All retailers would like to reach their breakeven point in sales earlier rather than later,” he says. Once a company’s fixed costs have been met, they can start generating profits, Stampfl says. Reaching that milestone sooner also gives retailers more freedom to discount if they need to, he says.

Lower price points

To attract added customers this holiday season, JAM Paper & Envelope, like other retailers, is pinning down lower price points. For instance, rather than sell large spools of ribbon as he had in the past, Jacobs is making smaller quantities available for less. “Although the price per yard is more, we believe the customer will look at the total price they are paying and will be more inclined to spend less now,” he says.

Other retailers and designers are using a similar strategy, swapping expensive materials for cheaper ones. “If you were a designer accustomed to displaying $8,000 dresses, the way to cut your price point is to not lower the price for the $8,000 dress, but to offer less expensive dresses made with less costly materials,” says Jack W. Plunkett, the chief executive of Plunkett Research, a market research firm in Houston. “You still have to maintain profit margins,” he says.

Discount deliberately

Although offering less expensive merchandise might bolster sales, discounts will continue driving customer purchases this season, says Shah from Retail Eye Partners. However, most retailers won’t resort to big clearance sales. “You will not see the crazy markdowns of last year,” she says. Instead, “the promotions and the deals that you’ll see will be planned promotions.”

The key to discounting successfully is being able to negotiate lower prices with suppliers in advance, Stampfl says. This way, even if you mark down an item by, say, 50%, you’ll still make a profit, he says. And because nearly everyone in the apparel food chain is hurting these days, negotiating with designers and manufactures should be much easier, Stamplfl says.

Offer exclusive products

One of the most powerful lures a retailer can use is a product customers cannot get anywhere else, Plunkett says. For instance, “if you have a Judith Leiber bag that no one else has, that could send customers your way,” he says. Being the only retailer to offer an item — or better yet, an entire brand — can drive shoppers to your store, Shah says. That’s the idea behind J.C. Penney's (JCP) strategy for lassoing the exclusive rights to sell Liz Claiborne’s (LIZ) clothing line, she says.

Selling more store-brand merchandise can also lead to higher profits, Plunkett says. You get more control over pricing and inventory when you’re dealing with your own products, he says. “You’re not paying for somebody’s advertising. As a result, there are fewer direct costs and less overhead,” he says.

-Write to Diana Ransom at dransom@smartmoney.com

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