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 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., 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., 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.

LOOKING ABROAD

As U.S. companies work through such issues at home they are expanding their international operations. Consumer products makers like leader Procter & Gamble Co. have seen rapid growth in areas such as Eastern Europe and Latin America. But it can be harder to expand in such markets since companies must often sell through distributors to reach multiple stores, rather than selling directly to a retailer like Wal-Mart.

In terms of global retailing, the importance of emerging markets is kind of the big thing at this moment, said Matthew Stych, director of retail research for Euromonitor International, stressing the BRIC countries: Brazil, Russia, India and China.

(BRIC countries) are where the growth is going to be, said Ritholtz. You have well over a billion people in India and over a billion-and-a-half people in China and a lot of these people for the first time in history (are) moving into the middle class. That means things like computers and laptops and cell phones and even iPods.

Stych also said as retailers try to expand into new markets, nonfood retailers like Ikea, Best Buy Co. Inc. and Home Depot Inc. might have a good chance, because it is easier to copy their stores from one market to another.

Food and drink are local tastes. Non-grocery can replicate the model in another market.

But Tesco Plc, Britain's largest food retailer, is getting ready to test that theory as it prepares to bring a fresh convenience store concept to the United States later this year, adding pressure to traditional U.S. food sellers.

Tesco's small Fresh & Easy Neighborhood Markets will focus on ready-to-eat meals and fresh and environmentally friendly products, hoping to capitalize on consumers' desire for what is new, convenient and higher-end. Manufacturers including Playtex Products Inc., Whirlpool Corp. and Jarden Corp. are hoping to do the same.

Other European retailers, from France's PPR to Germany's KarstadtQuelle and Britain's DSG Internationalaa are also pushing the boundaries of traditional retailing, linking the Internet, catalogs, mobile phones and stores as they strive to satisfy consumers' desire to shop where they want, whenever they want.

Meanwhile, the green agenda is forcing all retailers into new spaces from rethinking their distribution to whether they should stop giving away plastic bags.

(Additional reporting by Brad Dorfman in Chicago and Rachel Sanderson in London)

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