NEW YORK — With the start of the holiday shopping season just three months away, the nation's department stores are facing one of the retail industry's toughest challenges: luring back consumers who'd rather shop at stores like Target and Abercrombie & Fitch.

        Struggling with languishing sales since December 2000, the department stores have already done much of the gritty work necessary for a comeback: closing underperforming branches, cutting jobs and slashing inventories. Now they have to get customers back inside, and get them buying again.

        The retailers are trying a variety of new approaches. Saks Inc., for example, is adding more exclusive brands like Laura Ashley to its traditional department stores, including Proffitt's and Younkers. Macy's is testing new departments including large-size teen apparel.

        Meanwhile, Sears, Roebuck and Co. is bringing Lands' End clothes into its stores, and in electronics, is putting a big emphasis on the upper end of the market, including big-screen TVs costing as much as $10,000.

        Department stores are being forced to again rethink their strategy to counter a steady loss of market share to mall-based apparel stores such as Abercrombie and discounters like Target and Wal-Mart. While overall retail sales, particularly those of apparel, have been weak amid the sluggish economy, department stores have been one of the industry's worst performers.

        But analysts worry that the stores' cost-cutting and a too-cautious approach to fashion have hurt their ability to be innovative.

        “Squeezing expenses can't last forever,” said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, a retail consulting firm. “It will protect a business. It won't build a business.”

        Since the start of retailers' fiscal year, which begins at the end of January, sales at department stores open at least a year, known as same-store sales, were down 1.4 percent, while discounters posted an average 5.1 percent gain. Same-store sales are considered the best indicator of a retailer's health.

        On average, department stores' gross profit margins have improved to anywhere from 33 percent to 35 percent, up 0.5 percentage point from a year ago, according to Burt Flickinger III, director of Reach Marketing. But that doesn't mean all is well on the selling floor.

        “I would give us very high marks on every performance dimension except sales,” Karen Hoguet, chief financial officer at Federated Department Stores Inc., told investors earlier this month. “We need to improve our sales trend.”

        The company operates such department stores as Macy's and Bloomingdale's.

        Given the nation's economic and political uncertainties, predicting consumer spending behavior for the holiday season has proven trickier than last year. In ordering merchandise, the stores want to limit their risks but also don't want to run short of items that prove to be top sellers.

        An issue during the next month is whether consumers will feel like shopping around the Sept. 11 anniversary of the terror attacks.

        “This year is even more complicated even beyond just the economic environment,” Hoguet said.

        Merchants have held off ordering merchandise until closer to the holiday season, giving them more flexibility in chasing trends or hot sellers, according to Mark Minsky, senior vice president of merchandising at Doneger Group, an apparel buying company.

        Department store officials say their smaller inventories, in fact, have helped them to create more appealing selling floors. Inventories for many of the major department store operators are down on average by about 10 percent from a year ago.

        “It has been easier to create excitement with leaner inventory,” said Lavelle Olexa, a spokeswoman at Lord & Taylor, a May Department Stores Co. division. “The store has a strong focus on what counts.” For the holiday season, the company plans to focus on such categories as boots, suede and jewelry.

        But while department stores try to woo customers back, their competitors are working just as hard. Target and Wal-Mart are continually paying more attention to apparel and Kohl's Inc., which has a strong clothing department, is extending its reach coast-to-coast.

        “Department stores are on a death march, and it may accelerate,” Flickinger said.

        Julia Bentley, a spokeswoman at Saks Inc., however, believes the stores' efforts to revive sales are beginning to pay off.

        Same-store sales at Saks, which operates upscale Saks Fifth Avenue and other more traditional department stores, have been down by only 0.8 since the beginning of the fiscal year, better than the industry average. A better merchandise presentation, a more focused selection of products and more exclusive merchandise have helped the company's sales.

        Still, while Saks is reworking its strategy, it's also being careful.

        “We are approaching the fall and the holiday, like the spring, very conservatively,” said Bentley. “You are positioned to react to emerging sales trends — both good and bad.”

Women say mentors most needed to succeed
ECKBERG: Worker safety grim note
Labor Day launches union campaign plans
Morning Memo
Promotions and new on the job
United close to choosing new chairman and CEO
Cheney left Halliburton holding asbestos bag
Whistle-blowers lack adequate protections
Department stores face holiday challenge