The industry bellwether, Wal-Mart Stores, Tuesday blamed higher prices at the pump for its weakest quarterly performance in four years.

So far, the relentless climb of oil and gasoline prices has pinched discount chains and dollar stores, which cater to lower-income shoppers. But if prices continue to rise, the pain could soon spread to chains that have long considered their customers immune to the fluctuating price of fuel, analysts said.

With oil and gas prices hovering in record territory, retailers are feeling yet another pressure: Everyday costs of business are up. Barbies cost more to make, diapers cost more to distribute and stores cost more to cool and heat.

``It is a perilous time in retail,'' said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm.

He said a combination of escalating fuel prices, heavy consumer debt and low savings ``will affect every retailer in America.''

Wal-Mart, shopped by nearly half the country's population every week, fingered mounting gas prices when it cut its prediction for third-quarter profit. Chief executive Lee Scott said he feels ``good about the economy, but I worry about rising oil prices.''

Those prices, he said, could ``erase improvements'' in the economy for the chain's lower- and middle-income customers.

Those fears jolted the retail industry. ``When Wal-Mart sneezes, retailing catches a cold,'' said Bill Dreher, a retail analyst at Deutsche Bank Securities.

Consumers, stung by escalating gas prices, say they are switching from name brands to generic ones, avoiding pricier chains in favor of cheaper competitors and abstaining from impulse purchases.

The national average for 4.5 liters of regular unleaded gasoline hit US$2.52 (HK$19.66).

With oil and gas prices hovering in record territory, retail executives said shoppers are shying away from many purchases such as bedding and curtains and focusing instead on basics, such as clothing and detergent - ``needs versus wants,'' said Kiley Rawlins, a divisional vice president at Family Dollar Stores, the nation's second-largest dollar-store chain.

Its customers, whose average household income is about US$30,000 - compared with US$45,000 at Wal-Mart and US$55,000 at Target - are simply running out of money at the end of their paycheck cycle.

Gas ``is becoming a bigger portion of their overall spending, and the pie is not getting any bigger,'' Rawlins said.

Wachovia Securities estimates that a 30 percent increase in prices at the pump reduces discretionary spending by US$243 for the average discount-chain shopper. Gas prices are up 36 percent this year, the firm found.

THE WASHINGTON POST