Top stock picks by the analysts are Coach Inc., Dick's Sporting Goods, Kohl's and Walgreen Co. Barnes & Noble, Dillard's, Gap Inc. and Jones Apparel Group were at the bottom of the heap. This week Sachs analysts also downgraded the specialty retail sector from neutral to cautious.

Overall, the retail industry faces a wide range of challenges, they said, including increased energy prices, fallout from Hurricane Katrina, insurance premiums and employee benefit costs. "The risks, broadly speaking, outweigh the benefits here," said Matthew Fassler, a Sachs retail analyst, during a breakfast session. "Energy prices pose the most potent near-term risk."

But the industry's woes are not real estate issues, said Daniel Hurwitz, senior executive vice president and chief investment officer at Cleveland-based Developers Diversified Realty, the owner of about 470 North American shopping centers. "I don't think we're saturated at all," he said during an afternoon session. "I think we're, in many cases, understored."