• by Sarah Mahoney  @mahoney_sarah, May 12, 2011

Just in time for chains like Kohl's and Macy's to turn in banner first-quarter earnings -- and even raise their forecasts for the year ahead -- a new study from KPMG details what retail companies will have to do to keep cash registers ringing in the months ahead.

"Companies are optimistic and are starting to see an uptick in demand," Mark Larson, KPMG's global head of retail, tells Marketing Daily. "They also feel like they've made significant progress operationally and are keeping expenses flat."

But they're making big changes, too, he says, shifting marketing dollars out of advertising and into direct mail and loyalty programs.

And since it is more difficult to grow by simply opening new stores, he says retail executives are well aware that they have to change their tactics. "When they look into the future, they see a sustained period of limited growth, so the game becomes capturing market share, wallet share, and solidifying their relationship with existing customers."

The survey included 152 retail executives, and 24% say they are seeing "significant increases" in financial performance over last year, with 51% expecting "some increase." And only 9% anticipate a decline.

"But they're still cautious," he says, pointing out that recent government sales figures don't show much of an increase in consumer demand once you strip out automobiles and gasoline. "And on top of uncertainties about consumer spending, stores continue to be concerned about rising costs."

About 18% say they have already seen a sustained increase in demand for their company's products and services since the economic slowdown; 54% expect sustained demand in 2011, and 24% in 2012 or later.

Retailers are focused on driving online sales, he points out, "and chains like Macy's are doing a very good job at that. But they are also focused more on integrating with other channels, including stores, social media, and M-commerce, as a way to capture more of their customers' spending."

And they are wrestling with the impact of smartphones, "which put an unbelievable amount of information in customers' hands while they are in stores, and the retailers who are able to use that will fare the best. Stores need to feed shoppers specials directed at them, based on who they are and how they use technology."

Still, he adds, KPMG research confirms that it would be a mistake to think that it's all about mobile coupons and promotional deals. "You have to stand for more than just price," he says. "You have to be delivering value to the customer, with some sort of competitive differentiation."

Separately, Kohl's reports that first-quarter net income climbed to $211 million, up from $199 million a year ago. And sales rose 3.1% to $4.2 billion, with comparable-store sales for the quarter rising 1.3%. The company also increased its financial forecast for the year. Earlier this week, Macy's did the same, based on stronger sales and earnings in its first quarter.