Discretionary Spending May Dry Up Quick in Holiday Aftermath

(MoneyWatch)  The new jobless figures are a reminder that retail will be hit hard as the recession puts more consumers out of work.

Making matters worse for most retailers, the current recession comes after several years of what has been termed the War on the Middle Class. Backers of the concept cite globalization and tax policies favoring investors as eroding the economic position of the larger wage-earning population.

While this may or may not be true, many consumers believe it is, and that affects their perceptions about how wealthy they are and how free they are to spend money. Retail actually has provided evidence that the phenomenon, be it real or imagined, has had an effect on consumers. Earlier in this decade, the success of chichi department stores such as Nordstrom, which cater to the affluent, and the struggles of value retailers, particularly Wal-Mart, seemed evidence that wage earners really were falling behind. Heck, Wal-Mart CEO Lee Scott actually asked the U.S. Congress to increase the minimum wage.

Because of perception or necessity, frugality has become a virtue again. Its comeback has been gradual, but it predates the recession. The do-it-yourself boom that propelled Home Depot and Lowe's goes back more than a decade as does the shift in home furnishings purchasing from department and furniture stores to mass-market retailers ranging from Bed, Bath & Beyond to Wal-Mart to Costco. Actually, the frugality trend goes beyond U.S. borders and helped discounters such as Aldi and Lidl over their hypermarkets competitors in Europe.

Frugality may turn on its beneficiaries, however. In Costco's most recent quarterly report, results took a hit as its members shifted purchasing from higher margin general merchandise to commodities and food. Holiday shopping, too, has trended toward the practical with consumers concentrating more purchases at supermarkets and drug chains.

So, what happens after Christmas? Clearly, some evidence suggests that consumers will hunker down like no one has seen in a long time. This holiday season may be a virtual last hurrah for discretionary spending for the duration of the recession. Retailers with strong value reputations may suffer despite their credentials, as you can't get consumers to trade down on purchases they're not making. Even retailers who combine general merchandise with significant food operations, which have helped warehouse clubs and discounters mitigate the slumping economy's impact, may see profits erode as sales shift to necessities.

This could be the winter of retail discontent.