SELLING KMART OK WITH PENNEY: While some department stores have been miffed enough to drop brands when they go for a wider distribution in the large chains or mass market, J.C. Penney apparently isn't one of them.

After Penney's said last month that it was going to carry the Leslie Fay brand in about 500 of its stores this fall, reports began to circulate that Penney's officials were disturbed when they discovered the Leslie Fay name associated with private label merchandise being carried at Kmart. Leslie Fay officials say the merchandise is produced by Next Day Apparel, a joint venture with West Union Apparel in which Leslie Fay owns 51 percent.

On a visit Thursday to a Kmart store in Belleville, N.J., merchandise with the label "Chelsea Wearhouse, a Leslie Fay Co." filled two racks, featuring polyester and cotton casual blouses and drawstring pants.

Jim Hailey, president of the women's division of Penney's, said he had seen the label but didn't object to Kmart selling the merchandise.

"We're not in the business of worrying about what other retailers are selling," Hailey said. "We're more in the business of worrying about providing the merchandise our customers want. I would never want to get into a situation where I would not offer the customers something they wanted because someone else does or does not carry it."

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