Retailers, consumer companies search for growth

By Jessica Wohl and Martinne Geller

NEW YORK (Reuters) - Bigger is becoming better.

After years of operating in their comfort zones, retailers and consumer product makers are branching out to find faster pockets of growth. Some are beefing up through acquisitions, while others dive deeper into developing markets, where growth outpaces that of the mature markets of North America.

Meanwhile U.S. consumers face rising costs for everything from gasoline to milk which, along with a tough housing market, is curbing their spending and putting pressure on the manufacturers and retailers vying for shoppers' attention during the upcoming back-to-school and holiday shopping seasons.

Industry executives set to attend the Reuters Consumer and Retail Summit next week have grappled with issues such as higher gasoline prices for some time. But these days, pressure is fierce and being heightened by higher costs for labor and key commodities like corn, making food and other goods more expensive. Retail and consumer stocks have paid the price.

The Standard & Poor's Retailing Industry Group Index gained nearly 15 percent over the past year, while the S&P Consumer Staples Sector Index gained 16 percent. By contrast, the Standard & Poor's 500 Index .SPX added about 22 percent.

"The countryside is littered with the bodies of economists who predicted the demise of the American consumer -- it hasn't happened yet," Ritholtz Research and Analytics' chief market strategist Barry Ritholtz said in an interview with Reuters Television. But "we see signs that they are starting to tire."

Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research, Stock Buzz), the world's largest retailer, has said it saw shopper worries about gas prices increase in the beginning of the year and is cautious about June sales. Wal-Mart's sales at U.S. stores open at least a year rose just 1.1 percent last month, excluding fuel.

On the other side of the spectrum Saks Inc. (SKS.N: Quote, Profile, Research, Stock Buzz), which caters to wealthy consumers, posted a 37.5 percent jump in May same-store sales, driven by items such as women's designer sportswear, handbags and shoes. Still, some of the gains at Saks stemmed from a shift in its promotional calendar, so same-store sales are expected to fall in June.  Continued...