The precarious financial position of the American consumer has led to a lot of headlines about thrift shops doing big business and for some second-hand store operators, the recession has been a godsend.

But as the economy gets worse, it's causing trouble for some thrift shops. Why? Aggressive discounting by retailers has narrowed the pricing gap between new and used. The Associated Press reports that "Since the financial meltdown last fall, however, many thrift and consignment shops have been hurt not only as people are shopping less but because those who remain are being pulled away by 80 percent off signs at the mall."

I've noticed this in my own recent forays into Plato's Closet, a chain a of used clothing stores targeting Gen-Y'ers. An Aeropostale t-shirt priced at $8 would have been a bargain a year ago -- but now you can get the same shirt new for $9.99.

Thrift shops are also being hurt by a decline in donations -- and consignment shops are also having trouble securing inventory, because less shopping means that people have fewer old clothes that they're looking to get rid of.

Still, the wave of retail discounting probably won't last long, as clothiers cut production to meet declining demand and bring their inventories back in line. Long-term, the future of thrift looks good.

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