The rules of retail in the US have changed, but the impact will be felt worldwide. Joanna Perry reports from New York

The answer to the economy is jobs, jobs and more jobs,” was the rallying cry of veteran US retailer Allen Questrom.

The Walmart board member and one time boss of JC Penney was backed up by his fellow panellists on the main stage of the conference at the National Retail Federation (NRF) convention in New York last week.

The retail industry has lost millions of jobs through the recession, and as the US economy returns to its growth path in 2010 it is seen as crucial that retailers begin to add to their payrolls once again. “We need to see job creation in the sector of the economy that employs the most people,” reiterated Mark Zandi, chief economist at credit rating agency Moody’s.

But for this to lead to profitable growth then this must be accompanied by an increasingly global outlook on how they do business.

A year ago at the show there was much soul-searching as to how the unsustainability of the boom years had not been spotted. This has given way to cautious optimism, but also a recognition that US retailers need a dramatic change of mindset on how and where they compete in the world.

The reason for this is clear. While the US economy is expanding, US consumers are expected to begin to save more, no longer relying on property to create wealth. At the same time there is an expectation that taxes will have to rise to reduce the country’s national debt. And the upshot is that consumer spending as a percentage of total economic activity (GDP) is expected to fall, according to Deloitte Research global director Ira Kalish.

So for US retailers to continue growing at the pace they have come to expect, they must expand their customer bases internationally, expand their horizons domestically in terms of what they offer to customers and - wherever their customers may be in the world - work harder at understanding what it is they actually want.

It is the last of these strategies that US retailers have begun to tackle first, as they battled for domestic market share in the past 18 months. Much was made of the initiative taking place at department store chain Macy’s to decentralise decision-making for assortment - which has seen pilot stores outperform the rest by 2.5%. Tailoring the in-store experience to consumers in different locations is something that successful US retailers such as Walmart and Best Buy were doing already, but this strategy is becoming more mainstream.

Dunnhumby US executive vice-president Matt Nitzberg gave the example of a retailer that began to completely personalise the offers on its quarterly mailings to 9.5 million customers, which resulted in response rates rising from 18% to 53%.

Similarly, even discount retailers are being more sophisticated in how they tailor their offer to quickly changing customer behaviour. Howard Levine, chairman and chief executive of discount retailer Family Dollar, said that his company has spent more on customer research in the past 18 months than in the prior decade. As a result it was able to quickly respond to customers cutting back on discretionary items, and Levine thinks it could be several years before they feel comfortable spending on such products again.

As well as a significant investment in analytical technology, Family Dollar completed a technology refresh at its point of sale to allow stores to accept food stamps.

At the other end of the market US luxury brands are being warned they face hard times as tax cuts for higher income earners introduced by George Bush are expected to be allowed to expire. If the aspirational affluent reduce their consumption as a result, creating lower price-point sub-brands is seen as one way to mitigate falling sales.

A question of expansion

By generating closer relationships with customers the idea is US retailers will strengthen their brands, and off the back of this there could be opportunities for them to capture more consumer spending by widening their offer.

But whereas for the past decade or more a widened offer meant expanding into non-food, opening new formats, or expanding assortments,

US retailers are now in range rationalisation mode. Instead they must seek to diversify strong brands in other ways.

Kalish says there is a good opportunity for retailers to try to capture more of their customers’ total spend by moving into other consumer services. He told Retail Week that this strategy makes sense because “in the US consumer spending is 72% of GDP - but retail is only a third of that, and it will probably shrink more than other parts of consumer spending”.

The final, and perhaps most significant, change in retail thinking that shone through at the show is the call for US retailers to think about internationalising their businesses.

Questrom explained how US population growth alone is not enough to stimulate business growth. He said: “We’ve added 30 million to the population in the past decade, and we have had no job growth.”

He believes that there is still too much capacity in US retail, and that US retailers will have to look internationally to emerging economies if they want to see sales rising as quickly as they have enjoyed before.

Of the BRIC countries, it is Brazil that stands out as an opportunity in the near term. Kalish says that while food retail there is already well established, speciality retail is wide open and makes Brazil a very attractive expansion target. Lower income groups are still being bought into modern retailing. And as well as increased attention from the 2016 Olympic Games, inflation and the value of its currency have been carefully managed.

China, meanwhile is seen as both an opportunity and a risk. Growth in China fell back from 10% to 6% through the recession, and is predicted to reach 9% again this year. But a massive increase in the money supply could lead to inflation, and there is a risk of an asset bubble bursting. At the same time US retail is starting to think about the longer-term future of China as the world’s manufacturing base. Wage rises in China, combined with the increasing monetary and ecological costs of transporting product so far, could see sourcing moving to other underdeveloped economies and closer to home.

So, is all this new thinking going to lead to the creation of jobs the industry is being told are crucial to recovery? Kalish says that with employment a lagging economic indicator, he expects the job market to remain depressed for the first half of the year, with it perhaps not picking up until 2011. However, an uptick in temporary employment suggests the market will begin to move in the right direction.

One word that didn’t feature as heavily as might have been expected was profitability. Kalish still believes that top line growth is what retailers should be aiming for and says profitability will follow. It was almost a given that companies which have trimmed their costs through the recession will retain their new, leaner profile.

European retailers were represented at the conference in the shape of Tesco, Kingfisher and Marks & Spencer. But there was also surprisingly little recognition from the Americans that if they are to compete in emerging markets, then they will be up against not just the local competition, but businesses such as these that all have experience of trading in multiple markets.

Whether more domestically focused US retailers can successfully begin to set their sights beyond their own shores, remains to be seen. And if they do, they may well find they have a fight on their hands.