4 Ways Smaller Stores Can Compete for Holiday Shopping Dollars

CHICAGO (TheStreet) -- The great American shop-a-thon is in full swing, as anyone who's tried to find a weekend parking spot at their local mall can attest. After a few years of relatively restrained spending, it seems consumers are feeling more confident about the economy and their ability to pay off the post-holiday bills. The National Retail Federation expects overall holiday spending to increase 4% this year compared with last year.

There is no question the final months of the year are a critical time for companies in the retail industry. On average, holiday spending accounts for about 20% of retailers' annual sales. (The number can be higher for stores that specialize in big-ticket items such as jewelry and electronics). Shoppers are expected to spend an average of $750 per person on gifts and decor, but the bad news for small, independently owned stores is that a significant percentage of that spending goes to large corporations such as Amazon (AMZN) and Wal-Mart (WMT) .

Which doesn't mean smaller retailers can't find ways to compete. The key is to offer something distinctive and exclusive, while also meeting shoppers' expectations about the holiday-shopping experience. Here are the key trends that smaller-scale retailers must keep in mind in order to stay relevant:

1. Gift cards
In a recent NRF survey, gift cards were the most requested and most purchased holiday gift item; 80% of the people surveyed planned to buy at least one. While gift cards used to be perceived as an impersonal cop-out to buying a "real" gift, they have become more widely accepted in recent years, especially among younger shoppers. (Teenagers, in particular, tend to be more excited about a gift card to their favorite store than a sweater hand-picked by grandma.)

That means independent retailers must stock and promote gift cards in their stores, talking up their advantages to customers who are trying to find something for a hard-to-shop-for relative. An added bonus: According to recent estimates, anywhere from 2% to 10% of gift cards are never redeemed. That's money that goes directly into the retailer's profits.