Retailers looking for growth in today’s economy might pick up a lesson or two from Coca-Cola’s Freestyle vending machines. First tested in 2009 and now rolling out full force nationwide, the futuristic touch-screen machines offer customers 125 different beverage choices, from flavored Dasani waters and sports drinks to Diet Cherry Coke. Customers can even create their own combinations — Fanta Orange and vanilla cream soda, anyone? — or try flavors unavailable elsewhere, like Raspberry Coke. This month, the company launched apps for Facebook and smart phones that let customers mix and name their own drink. Plans are that one day the apps will spit out a bar code for customers to scan at Freestyle machines and automatically dispense their own personalized blend.

Coca-Cola is dispensing more than just flavored water, says Wharton marketing professor Jerry Wind. The company is also creating excitement, tapping into social networks, giving people a chance to customize their own product and empowering customers in ways that a traditional vending machine can’t match. Those are important retail strategies in today’s economy, where one out of five people in the United States is either unemployed or underemployed and consumers remain reluctant to spend.

Since the recession began in 2008, retail in the U.S. has split into “two extremes,” Wind notes. On one hand, there is the luxury market, which caters to a small segment of wealthy people unaffected by economic ups and downs. Aside from a drop-off at the beginning of the recession, when luxury spending seemed ungainly, this segment still spends. On the other hand are discount brands, which have grown their market share as consumers scrimp and trade down to cheaper products. Brands that fall between those two categories will continue to be squeezed, Wind says, and will need to create excitement to make their product stand out.

In many ways, it’s a retail story that never changes, says Wharton marketing professor Leonard Lodish: “Retailers that really solve problems and delight consumers in ways that other retailers can’t … do very well.”

The recession has forced many retailers to get back to basics, according to Barbara Kahn, a Wharton marketing professor and director of the Jay H. Baker Retailing Center at Wharton. In today’s environment, where shoppers carefully consider each purchase, retailers can’t afford to be sloppy about what they offer. “I think this has been a good lesson for retailers,” she says. “You really have to deliver genuine value.” That doesn’t always mean offering the cheapest product, Kahn points out. Apple remains the prime example of a company that can sell high-priced gadgets despite a recession.

What it does mean is that the price has to be right. To the value-conscious consumer, for example, a classic suit made of cheap fabric would be no more appealing than a trendy outfit made of the finest silk: Neither would last long — the first because of the material, the second because of style. A better fit for today’s careful consumer: a classic suit made well, or a fashionable outfit made affordably.

“Our shopping patterns have changed,” Kahn says. “That should change retailers’ behavior, too.”

Golf Balls Online 24/7

Whether shopping on Amazon or finding deals through social networks, consumers have also learned to save money online, and that promises to be “a permanent behavioral shift,” notes Wharton marketing professor David R. Bell. “The Internet just offers so many ways to save — both through the advice, opinions and experiences of others, and through the direct deals from sellers. Once consumers have had great deals and great advice, it makes no sense to shift back.”

But retailers are missing the point if they only use online media to promote in-store sales. Finding new ways to make sales online is also a huge area for growth. Indeed, the game is no longer limited to e-commerce, notes the August issue of Chain Store Age, a trade magazine for retailers: Now there’s also F-Commerce, M-commerce, S-commerce and V-commerce — that’s Facebook, mobile, social media and video.

“I think customers respond to [social marketing] if it’s a two-way dialogue,” according to Erin Armendinger, managing director of the Baker Center. “People want to be heard. People want to talk. This gives them an outlet.” Companies that are very responsive to their online community — retailers like Nordstrom and Victoria’s Secret — get more out of the interaction than just online sales. Like Coke’s vending machine, which sends data back to the Atlanta headquarters about taste preferences and shopping activity, a thriving online community can also give retailers a huge amount of market data — a window into what customers want.

“It’s a way to link everything,” David Jaffe, president and CEO of Suffern, N.Y.-based Ascena Retail Group, says of the company’s multi-channeled online strategy. Ascena is the parent company of dressbarn, maurices and the Justice brands. The company uses online formats to reach out to existing customers about store promotions, but also uses online forums to do surveys and promote events that build up the brand.

Recent examples include maurices’ “Small Town Sound” and “Main Street Model” contests, online campaigns that tapped the store’s customers to find girl-fronted bands and models from small towns across the country. “It’s not so much about the product; it’s about the brand,” Jaffe notes. “If we get people engaged in the brand, it’s much easier to get them from thinking about the brand to thinking about the products.”

The online world also opens up sales opportunities that stores can’t match, says Edward W. Stack, chairman and CEO of Dick’s Sporting Goods, a specialty sporting goods retailer based in Pittsburgh. For example, the store’s online site offers customers the entire line of FootJoy Golf Shoes, a selection impossible to stock in a bricks-and-mortar store. Customers can order customized athletic shoes or golf balls online. Dick’s is marketing its online business aggressively and adding new products like mobile apps to capitalize on the opportunity. “We want people to be able to shop with us 24 hours a day,” Stack notes. “We want people to be able to shop with us however and whenever they want to.”

Not every retailer is following suit. According to Chain Store Age, 87% of consumers say they expect retailers to be able to track an order via any channel, but only 46% of retailers offer this ability. Nevertheless, online retail sales are up almost $21 billion from last year, according to Forrester Research, an independent research firm in Cambridge, Mass. Forrester also forecasts mobile commerce sales to have a compound annual growth rate of 39% every year until 2016, increasing to $31 billion by that time. The danger for retailers: Mobile users may also be using their phones to shop elsewhere. In a March survey of 8,000 consumers, online comparison shopping site PriceGrabber found that 29% of smart phone users have downloaded at least one shopping app. About a third of them use the apps to compare prices or find nearby products to purchase.

Copying the Mannequins

The increasing competition and tighter spending in the U.S. has sent a rising number of retailers looking abroad for greener pastures, hoping to grow by moving into markets where shoppers still spend freely. “There aren’t many new markets in the U.S., so internationally, where do you go?” Armendinger asks. “You go to emerging economies where there are pockets of wealth and places that have an affinity for brands.”

Wharton marketing professor Stephen Hoch agrees. In the U.S., “everybody’s trying to figure out how to make their dollars go farther.” U.S. retailers are looking at the market “and saying, ‘I can’t grow here, I have to grow, so I have to grow somewhere else.'”

“Somewhere else” often includes China, where conspicuous consumption is now the norm. For apparel retailers, China has become the most attractive emerging economy in the world, according to a recent study by Chicago-based consulting firm A. T. Kearney, primarily due to rapid economic growth and increasing incomes. Gap opened stores in Beijing and Shanghai in 2010, for example, and PVH Apparel Group hopes to splash its Izod brand across 3,000 stores in China over the next five years. Luxury brands are particularly welcome in China, where they are used as symbols of status.

The Chinese “have a thirst for brands, [which] they see as signifying wealth,” says Armendinger. And their sights are not only set on luxury brands. In general, there are not a lot of strong domestic Chinese brands, so it’s an open field, she notes. Nike, for example, is a common brand in the U.S., but it carries high status in China. Chinese shoppers are still excited by brands, labels and logos, Armendinger adds — even if they haven’t quite yet figured out how to mix and match and make them their own. “People walk into stores in China and see a mannequin put together and say, ‘I want that.’ They have emerged, but they are [still] an emerging economy.”

“China is the big place for all the foreign retailers,” says Hoch — and that’s not just because Chinese consumers are eager to sample new foreign goods. China’s government is also rolling out the welcome mat. The global recession made it clear to China that its economy was far too dependent on exports. The Chinese government is “very interested in encouraging foreign investment by retailers [in order to] to jack up consumer spending, so the government doesn’t have to [continue to] spend to get the country to grow,” Hoch notes.

China’s rapid economic growth is a double-edged sword for retailers who source goods from China but don’t sell there. “Inflation that’s coming out of China is something virtually all retailers are concerned about,” says Stack of Dick’s Sporting Goods, which has sourcing offices in Hong Kong and mainland China, but sells virtually all of its products in the U.S. market. Costs of those goods are going up, he says, and will probably lead to price increases for U.S. consumers beginning next year.

India is another market that companies are revisiting. In the past, India was a difficult market for foreign retailers because it placed restrictions on multi-brand retail, according to Hoch. Walmart, for example, had to partner with a local entity to open its first cash-and-carry stores. “Recently, India has changed and decided that foreign multi-brand retailers can operate in India and have more than 50% ownership,” Hoch says. “It’s not as easy as China, but it’s still a big market.”

Latin America is also hot, according to another A.T. Kearney study, which ranked Brazil as the top developing country overall for retailers in 2011. South American countries fared well during the recession, the study noted, with overall 6% growth in 2010. Brazil’s attraction: expected GDP growth of 5% year over year for the next five years, “substantial” government infrastructure projects in the works and a large urban population that is increasingly eager to spend.

“In Internet retailing, Brazil is about 10 years behind the U.S.,” according to Lodish, “but it is growing faster…. You’re going to see a lot of growth in places like Brazil.” Uruguay, Chile and Peru also made A.T.Kearney’s top 10 list because of their growing economies. Uruguay’s GDP grew 8.5% in 2010. Chile’s GDP grew 5.2% in 2010 and is expected to grow 6.1% in 2011, in part due to government incentives to increase retail consumption. Retailers are also pushing into parts of the Middle East and North Africa.

Other retailers are expanding closer to home: Clothier J. Crew Group this month opened its first Canadian store in Toronto, and reportedly plans another 20 or so in Canada over the next few years. And after spreading stores throughout the U.S. and Canada, Williams Sonoma plans to open its first upscale kitchen store in London in 2012 to kick off its international expansion. Ascena picked up stores in Canada when it acquired 905 Justice stores in November 2009 from Tween Brands. “We see Canada as a great market,” Jaffe told Knowledge at Wharton, adding that the company continues to open up U.S. stores as well for all three of its brands.

Some retailers that haven’t yet made the global leap are finding that their online presence can become a bridge to overseas markets, says Baker’s Armendinger. “Facebook is global. It’s all over the world,” she points out. “People are ‘liking’ brands and talking to them. [Retailers] have global consumers now because of Facebook.” The social media interaction can give retailers valuable data on where their foreign fans are, and where their new markets may be. “The first way [retailers] dip their toe into that [overseas] business is to ship internationally from their website…. Then they can build up their database and see where their customers are coming from,” she says. An increasing number of specialty stores are going this route, Armendinger adds. “Last year, all of a sudden everybody was saying, ‘We ship to 90 countries!’ [Shipping overseas] is difficult, but it’s easier than [doing business from] a bricks-and-mortar store.”