Avenida Petit Thouars, where it meets the Av. Ricardo Palma (continuance of Av. Pardo towards Via Expresa), 2 blocks from the Ovalo-Parque Central/Parque Kennedy. Many souvenir shops gathered together. Walk the Petit Thouars for 3 to 5 blocks up (direction centre of Lima, you'll also pass by the post-office) and there are many. Maybe a little, but very little, more expensive than in the centre of Lima.
From around 5 pm to 11 pm the Parque Kennedy has, in the middle a small local crafts market.
Around Parque Kennedy many department stores (Ripley, Saga Falabella) and bars/ restaurants.
Advantage here is that it's a relatively safe area.
The shops in Larco Mar are much more expensive. Window-shopping and good for a drink/meal with a great view over the Pacific.
Info january 2006
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Theme: Local Craft
Address: Avenida Petit Thouars and Parque Kennedy
Directions: Centre of Miraflores, the Ovalo