Last week consumer credit for September fell by $14.8 billion, marking the eighth consecutive month the consumer pulled in his or 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 isn't 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to tell from the data if the drop in credit outstanding came from consumers cutting back willingly or from credit being withdrawn.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 percentage 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 Jo-Ann Stores before and Stein had additional comments on the company.

The latest data point in the craft industry (roughly 50% of Jo-Ann Stores' sales) suggests the company, which is rated a "buy," is continuing to gain market share. Last week, A.C. Moore reported comp-store sales for the third quarter that were down 7.7%. Jo-Ann Stores had a gain of better than 4% for the same period.

The retailer has been the beneficiary of Wal-Mart's gradual withdrawal from the fabric business, but Stein thinks "the much greater opportunity will fall on the craft side of the business." Jo-Ann Stores has an estimated 20% share of the $5 billion fabric business but only 4% of the roughly $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. Jo-Ann Stores has a strong balance sheet and should finish the fiscal year with about $100 million in cash net of debt. Stein's target is $42.

TJX is another of the value-focused retailers. You should never rely on the anecdotal but my granddaughter, three-year-old Lola Jane, and I went to the local TJ Maxx store to buy "special" pajamas for her and we couldn't find a parking spot! I also noticed far nicer cars than mine in the lot.

Value-based shopping is definitely the "in" thing. Stein has raised his earnings estimates for the company to $2.54 a share for fiscal 2009 and $2.85 for fiscal 2010. At the current price of $39 the stock sells for 13.7 times the January 2010 year.

The company has several brand names with the Mar/Maxx division, which encompasses the well-known TJ Maxx and Marshall's, accounting for 65% of sales and almost 75% of operating profit. October comp-store sales were up an impressive 10% and the company has had only one negative comp year since 1982. On the vendor side "tough times force vendors to seek out alternative channels of distribution because traditional customers close stores, go out of business, or pare back inventory levels," Stein says. In good times "retailers increase inventory levels, add new vendors and take more risks, increasing the close out opportunities for TJX even more."

For the consumer side, rising unemployment, high debt levels and reduced wealth has forced consumers to save more and has forced households to stretch their budgets. TJX, rated a "buy," has been one of the solutions to the consumer quandary. Stein writes, "Consumer traffic has been up in stores all year, while the vast majority of the industry has posted negative traffic trends."

Remarkably, during a challenging year for all businesses and despite spending $600 million buying back stock, the company improved its balance sheet significantly the last 12 months. In January, TJX had $750 million in debt and $450 million in cash. Stein figures that by January 2010 cash will be $413 million and debt $375 million. Stein has a $45 price target which would be 16.1 times fiscal 2011 earnings and 7.8 times fiscal 2011 enterprise value/earnings before interest, taxes, depreciation and amortization. Both are in line with historic averages.