The cash divide is widening.

As weaker fashion companies scramble to keep the goods flowing and the bankers at bay, the powerhouses that managed to sock away money during the credit crunch might just start putting their extra millions to work. Options include new lines of business, IT makeovers, store refurbishments, and even acquisitions.

“Cash is a funny thing—you want to do something with it,” said Leon Nicholas, director of retail insights at MVI Retail Insights. “But unemployment has passed that ‘magic number’ of 10 percent now, which is a big psychological hurdle. You may still see some companies starting to wade back out there and start to spend some money. Right now there’s a lot of caution, which translates into restraint in terms of spending—both by companies and by consumers.”

Still, the world hasn’t stopped. Retail stocks hit a 52-week high last Monday. Baby boomers are headed toward retirement, the Hispanic population is growing, and new media continue to make their mark.

“There’s too much happening to simply ignore it,” Nicholas said.

And the longer profitable companies wait, the bigger the cash hordes can grow.

Coach Inc., which reported its fiscal first-quarter results last month, added $194.3 million to its coffers for the three months ended September 26, making a total of $994.7 million readily accessible to the firm.

With earnings season in full swing, analysts will be focusing on the impact of cost cuts on gross margins and profits. But the amount of money they’ve saved up could be a better indicator of long-term strength.

The firms that have huge cash holdings largely have gotten them by being good at what they do, planning a degree of conservatism into their businesses and cutting back on store openings and other expenditures when the economy went south. So far, Polo Ralph Lauren Corp. has a $925.7 million kitty. Kohl’s Corp. put aside $1.35 billion. And Wal-Mart Stores Inc.—oversize, as usual—has a war chest of $8 billion. And they are just some of the largest companies suffering an embarrassment of riches.

The stockpiles make these firms, and a few others, doubly dangerous. Not only do they have the underlying businesses that produced that cash, but the funds also now give them the flexibility to adapt and take advantage of the shifting retail and fashion landscape.

“You have even more formidable competitors than you had in the past,” said Joel Bines, director at AlixPartners. Cash didn’t matter as much during the debt-boom years earlier in this decade, when just about any fashion firm could borrow to expand. “The world didn’t differentiate between strong, fundamentally cash-generating businesses and less healthy, more cash-constrained businesses,” Bines said.

With credit expensive and scarce, firms that generate a significant amount of cash will find it easier to build their businesses and take on new ventures. And the companies just scraping by are forced to avoid risks. “It’s amazing the paralysis that overcomes cash-constrained companies,” he said.

For companies that do have the dough, and a fiduciary duty to return value to investors, there are plenty of choices, but some are better than others.

“Shareholders are always like, ‘Pay dividends, give it back to me, buy shares back,’ and that may not necessarily be the best use of cash for the long term,” said Christine Chen, analyst at Needham & Co. “You have to look for new cycles of growth.”

Many of the companies taking on new lines of business despite the downturn are doing so with at least some cushion on their balance sheet.

Coach is funding Reed Krakoff’s namesake fashion line, which will launch in fall 2010 and could open up new avenues of growth for the company that cut its teeth in the accessories business. And Aéropostale Inc., with $245.5 million in cash on its books and a healthy business, launched the P.S. kids concept in June and sees potential for 500 doors down the line.