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Online retail sales in the U.S. to hit $204B in '08

Slowing economy won't deter online shoppers

By Linda Rosencrance
April 8, 2008 12:00 PM ET

Computerworld - Online retail sales are projected to hit $204 billion in 2008, up from $175 billion in 2007, and should top $300 billion over the next five years, according to a Shop.org study conducted by Forrester Research Inc.

While consumers are expected to spend less on retail goods in physical stores and through catalogs, Americans will continue to shop online for clothing, computers and even cars, according to "The State of Retailing Online 2008: Marketing Report." Forrester surveyed 125 retailers during February and March of this year for the report, which was released yesterday. This is the first of a series of three reports based on the study.

"From higher shipping costs to changes in consumer shopping habits, online retailers are not immune to the current economic climate," said Scott Silverman, executive director of Shop.org, in a statement. "But the fact that online sales will increase substantially this year demonstrates the resilience of the channel and is a testament to the value and convenience most customers find when shopping online."

In 2007, five categories drove nearly half of online retail spending: apparel, accessories and footwear; computer hardware, software and peripherals; autos and auto parts; consumer electronics; and home furnishings, the report said. Those same categories are expected to drive online retail sales through 2008.

"We anticipate approximately $29 billion more ... transacted directly online in 2008 through e-commerce retailers, compared with 2007," the report said. "Of the e-commerce total, online sales of apparel, accessories and footwear should be approximately $3.9 billion greater than last year, followed by an additional $3.2 billion transacted in computer hardware, software and peripherals online."

According to the report, online retailers allocate 53% of their marketing budgets to acquiring new online customers and 21% to keeping the customers they already have.

"What's spearheading online retail sales growth is a tale of two shoppers who visit the Web for very different reasons," said Forrester analyst Sucharita Mulpuru, lead author of the report, in the statement.

Mulpuru said the casual shopper goes online to look for the best prices, while more affluent customers like the convenience of shopping online and are not necessarily looking for the best deals.

"Retailers would be wise to recognize there are significant opportunities within both audiences and should market to them accordingly," Mulpuru said in the statement.

The most effective way to reach new customers is through search-engine marketing, the survey found. Survey respondents said 35% of their sales came from marketing using search. However, companies are also using more traditional marketing tactics, such as catalogs and direct mail, to drive customers to their Web sites, according to the report.

In a switch, the survey said, retailers are less interested in offering consumers free shipping this year.

"While 85% of online retailers said they used some shipping -- with conditions -- promotions in the past, just 35% said that they would focus more on these types of promotions in 2008," according to the report.

Instead, retailers plan to use social computing initiatives to attract customers. A majority of retailers said advertisements and widgets on social networking sites would be subjects of increased focus this year.

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