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While gadgets and electronics continue to be hot items year-on-year, there will be fewer large purchases this holiday, such as TVs and computers. This is partly due to the fact that retailers will look to reduce the number of deep discounts – which severely damaged margins this time last year – along with the fact that customers will move towards needs over wants.

“This season there won’t be a “wow” factor in terms of sales,” said van Beeck. “Consumers have been so inundated with discounts for more than a year that it will be difficult for retailers to get shoppers excited about holiday promotions.”

However, one of the biggest gadget winners this holiday will be e-book readers, partly because the prices are being driven lower by competitors entering the market (e.g. iRex and Nook). About 30 percent of all e-reader sales in 2009 are estimated to derive from the holiday period alone.

“Consumers will reduce spending on big ticket items,” said van Beeck. “Instead, they’ll trade down towards trendy and cheaper gadgets like e-readers; iPod Nanos; Nintendo Wiis and other game consoles; Flip Video and small point-and-shoot digital cameras. This is where the real value will be for consumers this Christmas.”

For the second year running, this will be a make or break holiday for retailers, as many cannot survive another season of suppressed sales. With total gift sales forecasted to decline 2.6 percent this Christmas season, “necessity gift” like clothing will be the only growth category, according to industry research IBISWorld.

“Clothing is the only gift category to see growth this year because it serves a dual purpose,” said Toon van Beeck, senior analyst with IBISWorld. “Parents are using this Christmas season as an excuse to update their children’s wardrobes, still filling space under the tree and ultimately saving money in the long run.”

As the biggest retail category, clothing represents 18.6 percent of total Christmas gift sales in 2009, at $81.91 billion. Discount and convenient retailers like Zappos and Kohl’s will continue to see strong sales volumes, as consumers move away from higher-end goods to more value-added purchases.

However, brand name products and celebrity labels are going to fare poorly this year, while basic clothing items are expected to perform well. Overall, clothes are expected to rebound from their dismal performance a year ago – which was among the worst Christmas retailing seasons this century

Reese Witherspoon hits SATINE for some shopping. She purchased the Rebecca Minkoff Brown Croc Clutch ($340).