Kohl’s Corp. is making the most of what economists are starting to think of as an “epidemic of thrift” that could keep the economy limping along for another year or more.

This story first appeared in the August 13, 2010 issue of WWD. Subscribe Today.

Echoing Macy’s Inc.’s results from a day earlier, Kohl’s posted stronger second-quarter profits and sales Thursday, with private and exclusive brands bringing in 49.1 percent of its business. Kevin Mansell, chairman, president and chief executive officer, said the firm had room for additional exclusives and plans to unveil a “major” new initiative soon. That could bolster its branded lineup, which already includes Simply Vera Vera Wang and Fila Sport.

Both Kohl’s and Macy’s have used exclusives to gain market share, and analysts said they are both taking business from J.C. Penney Co. Inc., where comparable-store sales are up just 1.3 percent so far this year. Penney’s, which reports second-quarter results today, hopes to revitalize its business with a fresh take on Liz Claiborne as well as MNG by Mango shop-in-shops.

Erika Maschmeyer, analyst at Robert W. Baird & Co., said chains have figured out how to operate in the new environment and are taking fewer risks.

“Retailers have learned to drive sales using less inventory,” Maschmeyer said. “Provided that sales don’t drop off a cliff, I think they’re more defensive now — better prepared and slogging along.”

Kohl’s second-quarter net income advanced 13.5 percent to $260 million, or 84 cents a diluted share, compared with $229 million, or 76 cents, a year ago. Sales for the quarter ended July 31 increased 7.7 percent to $4.1 billion from $3.81 billion on a 4.6 percent comp increase. Kohl’s said a rise in expenses related to a new credit card deal, infrastructure upgrades and additional advertising would hold earnings this year to $3.57 to $3.70 a share, below the $3.76 analysts had penciled in. Shares of Kohl’s slipped 2.7 percent to $46.50 on a day when retail stocks were basically flat.

“Our increased penetration of private and exclusive brands, along with very strong inventory management, continues to benefit us on our gross margin rate,” Mansell said. “We enter the back-to-school season with new and fresh inventory. Inventory levels are up less than sales, and clearance levels are very well managed.”

Mansell said comps would rise 2 percent to 4 percent in the back half, when comparisons will grow tougher.

The battle for market share, which will come into sharper focus next week when Wal-Mart Stores Inc., Target Corp. and a host of other retailers report results, is playing out in a recovery that suddenly seems to have much less pep.

IHS Global Insight economist Nigel Gault cut his 2010 economic growth forecast to 2.8 percent from 3.1 percent in an analysis ominously titled “The Epidemic of Thrift.”

Gault told WWD he was trying to describe why this is a particularly weak recovery.

“It’s still a recovery, but it’s not the sort of recovery that we’re used to,” Gault said, noting that consumers led the economy out of the 2001 recession. This time, though, retailers can expect sales to keep rising, but at a very modest pace.

“It’s very difficult to say when confidence will return for both businesses and consumers,” he said. “I can’t see anything out there to set things going, certainly not this year. Maybe sometime later next year things will start to pick up more strongly.”

On Thursday, the S&P Retail Index treaded water — falling less than 0.1 percent to 405.73 — while the Dow Jones Industrial Average fell 58.88 points, or 0.6 percent, to 10,319.95. With the exception of London’s FTSE 100, which rose 0.4 percent to 5,266.06, overseas markets were down.

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