Last week consumer credit for the month of September was reported and fell by -$14.8 billion. That marked the eighth consecutive month the consumer pulled in his/her horns. Consumers apparently continue to believe they are too highly leveraged and are working to pay down debt. Banks are still tightening lending available to consumers (and small businesses) and are even pulling existing credit lines from established customers. It is not possible to tell from the data if the drop in credit outstanding came from consumers cutting back willingly or from credit being withdrawn. But it may not matter since a drop in credit for whatever reason means lower total consumer spending.
Consumer debt as a percent of income is lower than just a few months ago but still way above normal. It peaked at something like 136% of income and is now closer to 125%. But the long term average is closer to 93% and things usually revert to the norm. This is not an environment to normally poke around retail stocks.
But Jeff Stein of Soleil/Stein Research has indentified a few value added retailers that offer the consumer a better deal than many others. We have noted JoAnn Stores before. Jeff had additional comments Tuesday on the company. The latest data point in the craft industry (roughly 50% of JAS sales) suggests JAS is continuing to gain market share. Last week A.C Moore reported comp store sales for the third quarter were down -7.7%. JAS had a gain of better than 4% for the same period . JoAnn Stores has been the beneficiary of Wal-Mart's gradual withdrawal from the fabric business but Jeff thinks "the much greater opportunity will fall on the craft side of the business". JAS has an estimated 20% share of the $5 billion fabric business but only 4% of the approximately $25 billion craft business. Around 40% of craft sales are independent retailers that may not have committed credit lines and could well be suffering cash flow problems. JAS has a strong balance sheet and should finish the fiscal year with about $100 million in cash net of debt. Jeff's target is $42.