Bloomberg News reports that Wal-Mart Stores, Inc. (NYSE: WMT) and Costco Wholesale Corp. (NASDAQ: COST) saw big sales increases in July thanks to $4 gas, while more upscale retailers, such as The Limited Brands (NYSE: LTD), lost business. The stock market is responding to the change and so far this year, Wal-Mart shares are up 27.8% but Costco's have fallen 5.8% (thanks to a profit squeeze due to its gasoline costs rising faster than the price it charges consumers). Limited stock has lost 10.8% during that time.

The details are worth knowing. Wal-Mart sales at stores open at least a year gained 3% while Costco's climbed 10%. Limited, the owner of the Victoria's Secret lingerie chain suffered a 5% decline. But Wal-Mart's results -- while strong -- were disappointing to investors who expected 3.4% growth. What is driving this increasing budget-consciousness? The beginning of back-to-school shopping, the suspension of sales taxes in some states, $4 a gallon gas, 9.6% inflation and seven months of job losses are all combining to push shoppers to discounters and away from pricier retail outlets.

What does the future hold for these retailers? It depends on the price of gasoline, the job market and the ratio of bank asset write-offs to capital. To shift consumers from discount consciousness to upscale buying, I think gasoline prices will need to drop to $2.50 a gallon and stay there for three months, the economy will need to start adding at least 50,000 jobs a month for at least three months, and big banks will need to stop writing off bad loans and adding to their capital for two quarters.

This won't happen for at least three years. So -- as I posted in April -- investment in discounters could be a good idea.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.