The line between outlet stores and mainstream retail is blurring this holiday season as even upscale and luxury chains ratchet back their inventories and slash prices. The success or failure of these value-focused strategies will determine whether some operators manage to stay afloat in 2010, according to Alan Cohen, chairman of Abacus Advisors, a New Jersey-based turnaround and restructuring firm.

“Throughout the summer and fall, stores at outlet malls like Woodbury Common (in Central Valley, New York) typically are full of great stuff,” the 30-year veteran observed. “However, this year inventories appeared to be light at the likes of Neiman Marcus’ Last Call or Saks’ Offth. Since these and other better retailers were discounting heavily in their mainline stores, they didn’t have as much excess inventory to send to their outlet locations.”

Deep concern about the credit crisis and cutbacks in consumer spending has translated into retail strategies marked by caution, Cohen noted. “Manufacturers produced less, and retailers ordered less. In the run-up to the 2009 holiday season, everybody was in a conservative mood.”

Naturally, the discount powerhouse Wal-Mart, with its robust grocery sales and aggressive product promotions, stands to benefit in this cautious environment. “The discounters and off-price chains will continue to do well,” Cohen said. However, customers will be very cost-conscious and trading down. Instead of buying five items, they’ll buy three; instead of buying an expensive item, they’ll go with a moderately priced one, he added.

When all is said and done after the holidays, filing for Chapter 11 bankruptcy protection may be the only option for many chains, Cohen added. “I certainly see more bankruptcies down the road. And we will also see vacancies going up at shopping centers and malls across the country. With a limited number of conventional retail, restaurant, or entertainment tenants actively looking for space, landlords will be exploring alternative uses like dental or emergency clinics or, in the case of large-box spaces, flea markets.”