The late, late show on the high street as shoppers pick up seasonal bargains

With just two days to go until Christmas, canny consumers who have left their shopping until the last minute will be counting their pennies with glee. Surely, after a year that has spawned countless high street casualties, retailers will be practically giving away their stock by now?

After all, the signs were good. The mighty Debenhams had already held its first "megaday" by the end of November. Within days, House of Fraser had retaliated. The maze of "three-for-twos" and "buy one, get one free" was becoming ever harder to navigate, with everyone from Marks & Spencer to Boots firmly in on the act.

Aware that last year's early January sales had entered shopping folklore, retailers knew there would be high expectations of a cut-price Christmas. Nick Bubb, the retail analyst at Evolution Beeson Gregory, says: "It's down to the mentality of people wanting a deal at a time when consumers have been tightening their belts."

But amid the undeniable sea of red on shop-front windows, there is another story to tell. With limited cash to go round - shoppers are shunning credit for the first time in years - people are pickier than ever when it comes to choosing where to splash their cash. Analysts believe that this year, even more than normal, the high street will split down the middle into clear winners and losers depending on who made the best fist of their pre-Christmas homework.

Christian Koefoed-Nielsen, at Panmure Gordon, says: "The tough retail climate is sorting out the sheep from the goats." Richard Hyman, the chairman of Verdict Research, the retail consultancy, says: "It will be tough but most retailers are in better shape to deal with it than last year. They have lower stocks so we are seeing less full-price sale activity and more promotions, which are planned. There hasn't been the same need to put up the white flag and surrender."

Chief among the better prepared is Marks & Spencer. Mr Koefoed-Nielsen said: "M&S is profiting from the fact that it ran into problems early on in the cycle so they are a year or two ahead of other retailers in addressing issues of costs, ranging and merchandising. The work done of necessity is paying off now." This means that unlike last year, when the group was forced into holding two clearance days before Christmas, this December's promotions have been limited to a "mix-'n'match" offer on gifts. The retailer, which had 40 per cent less stock to shift coming into the season, is not even planning to open on Boxing Day.

Another obvious winner is John Lewis Partnership, whose "never knowingly undersold" motto has been tested to the full by the numerous discount days held by its competitors. Yesterday it said sales so far this week are up 8.9 per cent on the previous year - another record for the department store group. It took £85.1m in the week to 17 December, breaking the record it set the previous week, with highlights spanning the usual panic-bought favourites such as lingerie, perfume and jewellery.

Then there is Tesco, a group whose hard-nosed approach to retailing has taken the stuffing out of lesser rivals, from Woolworths to Matalan. The supermarket group has stormed into the electricals market, offering 5-mega-pixel digital cameras for less than £50. Given that buying electricals is all about replacing old products, instead of buying into new trends, even groups as strong as Dixons will suffer from Tesco's increasing share of its market.

As to whether sales have started as early as last year, opinion is split. A string of retailers are already on sale: French Connection, LK Bennett, Gap, Hobbs, Clarks, Office, Kurt Geiger, Kookai, Russell & Bromley, Habitat and Mothercare have all taken the drastic step to bring January forward in sales terms. Then there are plenty of retailers, like the clothing chain Whistles, which have been offering discounts on some lines for weeks.

Richard Ratner, at Seymour Pierce, says: "There is as much pre-Christmas sales activity as post-Christmas. We've probably seen more promotional activity this year than last year."

Phil Wrigley, the chief executive of the discount fashion chain New Look, adopts a more circumspect tone. "Most people will have been more cautious in their stock commitment. People are looking to profit and cash, not headline sales growth."

Mark Charnock, at Investec Securities, speaking from the retail HQ that is London's Oxford Street, perhaps best captures the mood. "I don't get the sense of any retailers panicking. There is a little bit of clearance activity, particularly on party dresses and shoes, but it all feels fairly ordinary."

The British Retail Consortium, which like the Office for National Statistics and the Confederation of British Industry has said discounting is driving the recent pick-up, believes shoppers will still see a difference between the current promotions and the January sales proper. "Competition is so fierce that it makes sense for retailers to market their lower prices," a spokeswoman said. "But our anecdotal information is that all these discounts are planned."

Although the likes of Woolworths, Boots, WH Smith and HMV are not officially on sale, the sheer breadth of the promotions they are offering indicates how tough they are finding life. All are expected to wind up towards the bottom of the pile come the January trading statements.

They are all also facing stiff competition from the virtual high street, which has been steadily stealing sales from its brick and mortar rivals. Those retailers with decent web offerings, such as John Lewis and Marks & Spencer, will have benefited the most, while those such as House of Fraser, which are underwhelming online, will have suffered.

Given that Christmas falls on a Sunday, the last week was always going to be make or break. Mr Koefoed-Nielsen believes: "It's the usual story. Christmas will happen. People have postponed shopping and won't buy big-ticket items but at the end of the day we will find that Christmas sales were actually, surprise, surprise, ahead of last year."