By  on January 5, 1994

NEW YORK -- Most discounters should have a better year in 1994 than they had in 1993, but an increasingly crowded market will continue to pressure profit margins, Wall Street analysts say.

Greater competition due to store expansions -- as well as weak demand for apparel -- dented the bottom lines of most discounters in 1993 and drove Jamesway Corp. and Rose's Stores into Chapter 11 proceedings.

Discounters also suffered a slowdown in the rapid sales growth they had been enjoying over the past few years. Even Wal-Mart Stores, the undisputed discount champ, saw sales soften at its discount units in 1993, although bottom-line profits continued to be strong.

Over the past five years, however, discounters have raked in gains of 10 percent, compared with 2 percent for department stores.

Looking to 1994, Wall Street analysts said an improved economy and a pickup in demand for apparel should revive the bottom line for discounters. Some analysts are skeptical about whether the economy would perk up sufficiently. What seems certain, analysts said, is that the discount industry will remain fiercely competitive as the big three -- Wal-Mart, Kmart and Target -- as well as many regional chains, continue with aggressive store expansion programs.

Wal-Mart plans to add 115 stores in 1994 by penetrating further into the Northeast, Alaska and Hawaii. Kmart will add 140 to 150 new units under its new discount store evaluation program, either by opening new stores in new markets or replacing stores in existing markets.

Target, the discount division of Dayton Hudson Corp., expects to add 50 to 60 stores.

Among the regional chains, Caldor Corp. plans to open 13 to 16 stores in 1994; Venture Stores plans about 10 stores; Bradlees expects to open four to six stores, and Shopko looks for five to 10.

Kimberly K. Walin, retail analyst at Lehman Bros., said she expects most discounters in 1994 to see "a pretty aggressive pricing environment, especially until we see some better demand in the apparel business."

Walin said discounters' margins were under pressure last year because hard goods such as appliances and domestics have been outperforming apparel and other soft goods. Apparel typically has higher margins than hard goods.

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