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.

The figures are based on revenue at stores open at least a year. That is considered a key indicator of a retailer's health because it excludes results from stores recently opened or closed.

Retailers depend on the holidays, when they bring in as much as 40 percent of their annual revenue. The season also gives give valuable insights 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 Inc., Macy's Inc., TJX Cos. and Nordstrom Inc., which posted strong revenue gains that beat analysts' estimates. Macy's, Ross and Limited even boosted their earnings outlooks.

On the losing side, Target Corp., Kohl's Corp., and J.C. Penney Co. cut 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 like home improvement and electronics.

Heading into the season, stores knew it would be challenging to lure shoppers dealing with high unemployment, paltry wage growth and higher basic household costs. So retailers plied customers with free shipping and promised to match rivals' prices. Wal-Mart Stores Inc. resurrected layaway to help shoppers finance their purchases.

For the semi-official start of the shopping season, stores opened as early as Thanksgiving Day, pushing big discounts that resulted in record sales.

But shoppers took a longer-than-usual breather after that early splurge. A mild winter and Christmas falling on a Sunday also encouraged people to wait until the last minute.

That forced many stores like American Eagle Outfitters Inc. to slash prices on coats and other cold-weather merchandise more than planned.

Stores' success relied partly on what they sell and who they sell it to.

Among discounters, Costco Wholesale Corp., known for selling discounted household basics in bulk, continue to resonate with recession-weary shoppers. Its revenue at stores open at least a year rose 7 percent in December.

Discount chains like Ross Stores Inc. and TJX Cos., which sell name-brand merchandise at bargain prices, were also standouts, pulling in shoppers looking for high-quality merchandise for less money.

But Target posted just a 1.6 percent gain for December on weak sales of electronics, books and music. A rebounding Wal-Mart Stores Inc., which used the holiday to hammer its low-price message, offered a fresh challenge. Wal-Mart no longer reports monthly sales. Jharrone Martis-Olivo, director of research at Thomson Reuters also noted in a report Thursday that Amazon.com has stolen some market share in electronics.

Among department stores, Nordstrom and Saks Inc. had robust gains as the wealthy continued to shrug off sharp swings in the stock market. But AlixPartners' Bines noted both have done a good job in "creating scarcity" of certain designer merchandise, encouraging shoppers to buy at full price.

Macy's was the biggest winner among department stores, benefiting from its sweeping effort to tailor merchandise to local markets. For example, Macy's stores in Florida added more cashmere sweaters after seeing customers were buying them despite the weather. The retailer has also beefed up training for its salespeople and focused on exclusive merchandise, such as a line of dress shirts and ties under Donald Trump's name. And the Madonna's Material Girl fashion collection, aimed at teens, has done well at Macy's.

Macy's posted a 6.2 percent increase in December. The results beat Wall Street's estimate of 5 percent. For November and December combined, revenue at stores open at least a year rose 5.7 percent.

"We have a talented team of merchants that are focused on listening to the customer," said Terry Lundgren, chairman and CEO of Macy's in an interview with The Associated Press Thursday. He said that Macy's had planned for aggressive promotions, but they were baked into the results.

The chain has taken market share from an array of retailers in different categories, Lundgren said.

In contrast, J.C. Penney Co. and Kohl's Corp. had a harder time. Kohl's posted a 0.1 percent decline, while Penney had a slim 0.3 percent gain. While Macy's targets middle- to upper-middle-class shoppers, both Penney and Kohl's target middle- to lower-income shoppers, who have been particularly financially squeezed.

Analysts say Penney and Kohl's also need to create a better shopping experience and push to stock up on more coveted brands.

Penney, for example, has done well with its Sephora beauty shops and fashion exclusives like European clothing line MNG by Mango, but it needs to add more compelling brands, analysts say. Penney's new CEO, former Apple executive Ron Johnson, is expected to overhaul everything from pricing to merchandise.

"It's a tough environment, but stores have to be more creative," Mike Niemira, chief economist at the International Council of Shopping Centers.