BusinessTN

When Memphis-based discount retailer Fred's Inc. announced good news concerning price gains last winter, it wasn't an unexpected holiday gift to company executives. Jerry Shore, executive vice president and CFO, noted that the upturn was to be expected. The company hit its own downturn--ushered in by the national economic quagmire--a few years back, when gas prices first began scorching into the stratosphere and pummeling the lower economic consumer. But since then, well, consumers do not turn to Neiman Marcus in times of economic distress.

"We benefited from people staying closer to home and choosing the discount retailers over the department stores and other retail outlets," Shore says.

So, it turns out, a slumping economy does benefit some businesses. Four, to be exact, in the case of Tennessee. As of the last quarter of 2008, Shore says that was the number of businesses in the state that posted positive gains. (Besides Fred's, American Service Group, Kirkland's Inc., and experimental drug developer, GTx Inc. also posted gains.)

Fred's buoyant stock doesn't mean the company's development has progressed swimmingly over the past couple years. In 2007, the company found itself in the throws of a daunting expansion that reached far afield from its traditional bases such as hometown Memphis. The chain looked to be challenging some national chains in many markets, but by the fourth quarter, executives were reconsidering this growth strategy and looking for alternatives with the assistance of Merrill Lynch.

"We were looking because we had reached a point at which we were not performing where we thought we needed to, so we chose the alternative of running the model that we had in place," Shore explains. "Changes came in the way of more conservative growth, closing underperforming stores and pharmacies, and preserving capital."

Morgan Keegan analyst John Lawrence says that while Fred's position in discount wares is a positive factor for its over-achieving performance, it's a healthy stock and balance sheet that really gives the Memphis company buoyancy in treacherous economic waters.

"We think some of the players and industry participants are functioning better," says Lawrence, noting Fred's and Wal-Mart in particular.

It remains to be seen if Fred's will take up its former expansionist ways, but Shore says the company expects to accelerate growth in the future, with a caveat: No longer will Fred's press to open more stores just because it has the money to do so.

"Growth will be predicated on the profitability of the new model," he says, noting specifically that growth "will be conservative in 2009, but in 2010 and on, it will be evaluated with the success of the model."

Thus far, a branding boost from a new color scheme and growth plan has not helped the company increase its average transaction amount, Shore says, but it has helped maintain a respectable growth in traffic.

And yes, it does help that a flagging economy keeps consumers closer and on the lookout for discounts.