IF IT'S true that retail is just theatre by another name, then the shop window is scenery, costume, props and performance all rolled into one. But while in a theatre the magic happens on a stage, in the department store it's captured and frozen behind huge sheets of glass. In a feature headlined The Art Of Window Dressing, the New York Times once stated that the purpose of a shop window is to make customers cross the threshold. Fair enough. But, it continued, "to gain that object we must give people something to see. To make them see we must give them something attractive - in other words we must hold up the passing pedestrian on the street and, if he has no desire to buy, we must create in him the desire."

The article dates from 1901 and, though a few things have changed since, the basic tenets laid out there remain the same. When it's done well, the shop window makes us stop, stand, gawp in amazement, then enter. When it's done really well, it makes jaws drop, sides split and blood boil. But we still enter.

Today the shop window can be art gallery, nudist colony or political soap box. It can be a garage - Harrods put two Maserati sports cars in its windows earlier this year - or even a living space, as in 2002 when the same store's windows temporarily became home for a "family" of four.

Chosen from open auditions for a display sponsored by an electronics firm, they spent five days in a "house" kitted out with a £6000 fridge and the latest in high-tech home entertainment. The only downside was regular interruptions from visiting celebrities like Kim Wilde, snooker player Peter Ebden and Helen from Big Brother II. If you couldn't make it to London to watch them, you could follow their progress on the internet via a network of webcams.

Coming up with these ideas is the job of a creative director. Turning them into reality involves teams of prop builders and technicians, as well as floor-plans, blueprints and computer mock-ups - not to mention a knack for getting six-foot high sculptures through three-foot high display doors.

At Harvey Nichols, that's the job of visual merchandising controller Janet Wardley. She creates the windows for the flagship Knightsbridge store and the others in Edinburgh, Leeds and Manchester. No two windows are ever the same, which means Wardley's is a job with a very high pane threshold.

"We don't judge the windows from how much money goes into the till from them because they're not there to sell the product," she says. "They're there to sell the image of the store."

For Harvey Nichols, that image is fashion. Wardley's current London windows she describes as angular, prismatic and colourful, a nod to fashion's current obsession with "architectural cutting". It's intended to be "colourful and uplifting", she says, as well as a little Christmassy.

Easier to describe is the dinosaur made from coathangers which showed in her windows during London Fashion Week. Wardley had originally intended it be made from polystyrene bones - there was "a Gothic undercurrent" to that season's catwalk shows she tells me - but then her magpie eye spotted a picture of coathangers hung together to look like a rib cage. And hey presto! An idea was born.

"It was very simple and graphic. You could see it and understand it quickly but when you looked at it more closely you could see the interesting detail."

Predictably it proved a big hit with shoppers and passers-by: what's not to like about a huge dinosaur made from coat hangers?

Morag Todd is display manager at Harvey Nichols's Edinburgh store. While Wardley controls the overall look of the stores it's up to Todd to build and implement the designs in Edinburgh. She'll be receiving the coathanger dinosaur sometime in the new year - the props rotate from store to store - and has just put in her own Christmas windows. The display they replaced featured a series of kinetic sculptures which fired paint at blank canvases. They too provided passers-by with the all-important wow! factor.

"The good thing about it was the movement," Todd recalls. "We got a lot of feedback about that. There was a lot of paint on the catwalks last season, that's where that one came from."

Todd has a team of 12 people working under her and large studios in the basement of the St Andrew Square building where the props are made. In the past her team has included graphic designers and architects and among the current members are a veteran dresser of 20 years' standing and a couple of fine art graduates. Todd herself has a degree in fashion marketing and promotion.

"It's quite a diverse team so it means that when we're coming up with ideas there's lots of different angles," she says. "We bounce them off each other and come up with the best one."

Since Harvey Nichols is a fashion outlet, the initial inspiration for the windows comes from the catwalk shows. "I go with the buyers but I don't look at the shows from the point of view of the clothes," says Wardley. "I look at the music, the setting, how the whole thing is presented. I pick up on shapes or colours that I like. I pick up a mood, a feeling, a trend, then mould it so it's right for the store."

So, was the New York Times of 1901 correct in calling window dressing an art?

"Yes," says Wardley. "It's a taste level, a way of thinking. Art is being able to put something together in a way that looks good or is pleasing to the eye and it does that."

The world's most celebrated creative director - the Leonardo da Vinci of window dressing, if you like - is Simon Doonan, Reading-born but for the last 25 years the creative brain behind famous New York department store Barneys. His 2001 memoir, Confessions Of A Window Dresser, was recently dramatised by the BBC and screened under the name Beautiful People. The opening scene was set in the window of Barneys.

Under Doonan's hand, the store has become famous for its seasonal windows, in particular its exquisite Christmas displays. Huge crowds will assemble for each year's grand unveiling, presided over by Doonan as flamboyant MC.

Last year's display was on the theme of the eco-Christmas. It featured Rudolph The Recycling Reindeer (sculpted out of recycled bottle tops and tin cans) and a 10 ft apple made out of recycled cardboard boxes. It was, said Doonan, an encouraging nod to Mayor Bloomberg's much-derided green agenda for New York. Doonan and Barneys are not above playing politics with their window displays, it seems.

They're at it again this year. To celebrate the 50th anniversary of the peace symbol, the theme is the Hippie Holiday and the windows were unveiled earlier this month by Tom Brokaw. A respected former NBC anchor, Brokaw hosted the second presidential debate between Barack Obama and John McCain and has just published Boom, a book about the 1960s.

Doonan's topicality hasn't always been so well-received. While employed by the upmarket Maxfield boutique in Los Angeles in the 1980s he put in a window featuring a coyote chewing baby clothes, a reference to Australia's infamous Lindy Chamberlain murder case. Later, at Barney's, he created a Christmas scene in which the infant Jesus was replaced by a Hello Kitty doll. Even more recently, his 2008 US Election window display made headlines in the American media when it was judged to be pro-Obama.

The windows featured The Presidential Wives, a series of paintings of First Ladies by the artist Laurie Munn. Ahead of the election the display included portraits of both Michelle Obama and Cindy McCain, though the McCain portrait drew the ire of Republican voters for apparently misrepresenting Mrs McCain. As New York gossip blogger David Hauslaib put it, she may seem like a cross between She-Beast and Skeletor, "but there's no reason to make her forehead look that high."

The prestigious Madison Avenue store does have competition when it comes to Christmas windows, however. Over on Fifth Avenue there's Saks and Bergdorf Goodman, as well as the numerous other stores that make it one of the most glamorous shopping streets in the world. On nearby Third Avenue there's Bloomingdales and, of course, Macy's on West 34th Street between Broadway and Seventh Avenue. Most of them unveiled their Christmas windows last week and all are breathtaking.

Saks has based its windows on a limited edition children's book, A Flake Like Mike, published by HarperCollins and only available in Saks's 53 American stores. The theme is individuality and among the designers invited to create snowflakes for the window are fashion star Zac Posen. Swarovski crystals feature heavily.

Bloomingdales's 12 windows have been given over to kitschy interpretations of the Christmas tunes featured on Tony Bennett's new album, A Swingin' Christmas. Bergdorf Goodman's theme, meanwhile, is Calendar Girls and is the culmination of months of work in a Long Island studio. Bathroom caulk was squeezed through pastry tools to make decorative plastic cakes with ribbons, flowers and garlands, and silver leaf was applied by hand to ladders, trays and mirror frames. The centrepiece, Miss December, stands surrounded by 12 monkeys. The International Herald Tribune, no less, described the whole thing as "Mad Hatter-meets-Marie Antoinette".

Finally there's Macy's, the store most synonymous with Christmas thanks to the classic 1947 film Miracle On 34th Street, which is set there. This year the window theme is based on a famous editorial which ran in the New York Sun newspaper in 1897 after it received a letter from eight-year-old Virginia O'Hanlon who wanted to know if the red-suited one actually existed. "Yes, Virginia, there is a Santa Claus," was the famous response.

On O'Hanlon's death in 1971, the story of the little girl with the big question was turned into a best-selling children's book, Yes, Virginia, then an Emmy Award-winning television drama. Though the story is little-known in Europe, it is a deeply-entrenched part of American Christmas lore. Macy's take on it all? A campaign entitled "Believe". It's no surprise, then, that a walk round Manhattan's department store windows is now an accepted part of the Christmas tourist itinerary.

Of course in the current economic climate this may all look a little indulgent. Retail sales in the US fell nearly 3% last month, a bigger drop than expected. That follows a September fall of nearly 1.5% and contributed to the largest fall in US retail sales since 1992. In the UK, retail sales figures weren't as bad as expected but that didn't stop Marks & Spencer taking the unusual step of discounting all clothing and homeware by 20% for one day recently. Elswhere on the high street, you could be forgiven for thinking the Christmas sales had started a month early, to judge by all the marking down and selling up that's going on.

Have some sympathy, then, for the window dressers of the world. They spend months crafting their intricate displays then some joker slaps an enormous day-glo "Sale!" poster in front of it. Out goes the theatre, in comes the panto.