NEW YORK -- The 2011 holiday shopping season will go down in the record books as the year the Grinch stole stores' profits.

Many retailers sacrificed their bottom lines by pushing heavy discounts to shoppers bent on getting a good deal in a challenging economy. That created a sharp divide between stores that won the battle for wallets and those that didn't.

The big winners? Shoppers who held out for deals late in the season.

Retailers collectively reported a 3.5 percent increase in revenue at stores open at least a year for December, according to a tally of 25 merchants compiled by the International Council of Shopping Centers.

For November and December combined, the figure rose 3.3 percent, a solid increase but still behind last year's 3.8 percent pace.

Retailers depend on the holidays, when they bring in as much as 40 percent of their annual revenue. The season also gives valuable insight into what it takes to get Americans to spend in the weak economy.

Clearly, the rich kept spending, but for everyone else, it took a hot item like Apple's iPad or right-on exclusive fashions -- or a lot of "50 percent" off signs.

Winners included Limited Brands, and TJX Cos., the owner of TJ Maxx and Marshalls.

On the losing side, Target, Kohl's and J.C. Penney reduced their fourth-quarter earnings projections after reporting weaker-than-expected sales. Gap had a big sales decline.

"There's no question that the divide is getting wider, and will get even wider this year as the winners continue to take share away from rivals," said Joel Bines, managing director in the retail practice of AlixPartners.

"Consumers have limited time, money and attention, and they're investing in a smaller subset of retailers."

Retailers will report fourth-quarter earnings next month.

The fullest picture of holiday spending will come in next week's government retail sales report, which captures more categories.

Macy's: The department store chain is benefiting from its plan to tailor merchandise to local markets. Its exclusive merchandise, including celebrity names like Donald Trump, also has attracted shoppers.

Costco: The wholesale club woos members with discounted household items sold at bulk, and by offering a 'treasure hunt' experience.

TJX Cos.: The operator of TJ Maxx, Marshalls and Home Goods has lured shoppers who like top brands but don't want to pay full price.

Limited Brands: The Ohio-based Victoria's Secret parent has enticed shoppers with new collections, complemented by its fragrance launches.

Target: The discounter is feeling more pressure from a resurgent Wal-Mart.

J.C. Penney: The department store chain targets middle-class shoppers who have been financially squeezed by a tough economy.

Kohl's: Like J.C. Penney, the chain is grappling with a middle-class customer who is scrimping on basics but splurging on affordable fashions.

Gap: The clothing company has struggled to reinvigorate itself. The problem is that the fashions no longer are exciting to buy, and the chain is being squeezed by fast-fashion rivals like H&M and J.Crew. The chain has had to resort to deep discounting to drive sales.

Associated Press