Credit card issuers as well as cautious consumers are clamping down on credit card usage, but the consumers are buying anyway, using debit cards.  The result, experts say, is that store sales are holding level, promising to soften the effect of any economic slowdown on the retailing industry. Retail stocks are on the rise.

“The subprime mortgage crisis, which is a piece of the recession problem, has certainly impacted credit in the banking industry, especially with regards to customers with low FICO scores. But, with credit diminishing, debit is taking over,” observed Jonathan Silver, president and CEO of Affinity Solutions, a New York-based retail marketing solutions provider that monitored more than 3 billion credit and debit card transactions in 2007.

According to Silver, interviewed in Chicago at the Retail Advertising Conference, debit card usage passed credit card usage for the first time four or five years ago in terms of dollars and the trend is only getting stronger. “Despite the fear of recession, plastic in general has increased and more people are shifting more toward debit card usage,” he declared.

The American Bankers Association reported last year that payments by debit cards nearly tripled in the prior five years. In 2001, 26 percent of in-store payments were made with debit cards versus 21 percent of payments made using credit cards. In 2003, debit card usage increased to 31 percent for in-store payments, while credit card usage remained unchanged at 21 percent. In 2005, debit card usage rose to 33 percent, while credit card usage took a nosedive to 19 percent.

“In 2006, debit card transactions totaled $25.3 billion as opposed to $24.9 billion in credit card transactions," said Carol Kaplan, the ABA's director of public relations. "We are taking into account how often the cards are used for a purchase, and so, in spite of a recession, we are expecting this trend to continue.”

Leading retail chains' same-store sales in January increased by 0.3 percent, according to Thomson Financial. Target Corp. was down 1 percent and Wal-Mart gained 0.5 percent. 

This steadiness has actually produced a rise in retail stocks' prices, despite continuing fluctuations in the broad market.

On Thursday the Dow Jones U.S. Retail Index closed at 337.13, a 2.5 percent increase from 329 at Wednesday's close. The S&P Retail Index climbed 3.7 percent to 403.51 from 389.10.

Target stock rose 6 percent to $54.10, Macy's gained 5 percent to $25.10, Wal-Mart added 2 percent to close at $49.84, and J. C. Penney jumped 8.5 percent to $47.44.

Analysts are optimistic that the retail industry may pull through the current economic slowdown without much trouble. “Historically, during recession, retail stocks have done much better than the market,” averred Mark Miller, retail equity analyst with William Blair & Co.

Nevertheless, “retail needs to be cautious during recession, though economists are lenient in their view of the industry recovering rapidly from the recession,” said Ric West, deputy vice president, marketing promotion and production, Sears Holdings Corp., Thursday at the Retail Advertising Conference, organized by the National Retail Federation, in Chicago.