In a year where retail industry sales are expected to experience sluggish growth, Americans will continue to flock to the Internet for clothing, computers, and even cars. According to The State of Retailing Online 2008, the 11th annual study conducted by Forrester Research, Inc. (Nasdaq: FORR) of 125 retailers, online retail will continue to be a bright spot in the industry with retail sales* rising 17 percent this year to $204 billion. Apparel ($26.6 billion), computers ($23.9 billion), and autos ($19.3 billion) will be the three largest sales categories. The State of Retailing Online 2008: Marketing Report, the first of a three-part series of reports based on the study, was released this morning at’s Online Marketing Workshop in Scottsdale, Ariz.

“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 “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.”

As the number of people new to the Internet begins to wane, online retailers are constantly struggling between investing in strategies that retain current customers or those that attract new ones. According to the report, online retailers allocate 53 percent of their marketing budgets to online customer acquisition and 21 percent of marketing dollars to online customer retention. However, retailers are finding that traditional acquisition programs such as search engine or affiliate marketing may also serve as retention tools that attract existing customers as well as new shoppers.

“What’s spearheading online retail sales growth is a tale of two shoppers who visit the Web for very different reasons,” said Sucharita Mulpuru, Forrester Research principal analyst and lead author of the report. “The casual shopper goes online to look for the best price, leveraging the transparency of the Internet to save money. However, more affluent customers appreciate the convenience of shopping online and are not necessarily looking for the best deal. Retailers would be wise to recognize that there are significant opportunities within both audiences and should market to them accordingly.” class=”newpage” target=”_blank”

According to the survey, retailers report that search engine marketing continues to be the most effective way to reach prospects, citing 35 percent of sales come from that initiative. As a result, nearly all online retailers surveyed (90 percent) use pay-for-performance search placement, and 79 percent said they will make this tactic an even greater priority this year. Companies are also using offline marketing tactics to drive customers to the Web, with catalogs and other direct mail pieces taking priority over methods like television and newspaper advertising.

Though free shipping offers have proven to get some consumers over the obstacle of shopping online in the past, the study revealed that retailers’ are less interested in promoting free shipping options this year. While 85 percent of online retailers said they used some shipping with conditions promotions in the past, just 35 percent said that they would focus more on these types of promotions in 2008. Instead, retailers are eager to experiment with Social Computing initiatives to attract customers — 65 percent and 55 percent of retailers respectively said that social network advertisements and widgets would be categories of increased focus this year. However, Social Computing efforts to this point have been considered more effective for brand-building and less proven for driving revenue or sales conversion. Therefore, the report advises retailers to continue investments in proven techniques like email marketing and free shipping promotions to drive sales.

The State of Retailing Online 2008: Marketing Report is currently available to members and can also be purchased directly at Forrester RoleView™ clients will be able to access the report directly on as part of their subscription service starting on May 7, 2008. and Forrester will release their Merchandising report, which examines tactics to improve conversion rates and customer experience optimization investments and plans, in July at the Online Merchandising Workshop. In conjunction with the Annual Summit in September, they will release the Profitability report, which explores company organization, sales and metrics, operations and fulfillment, and expansion into markets outside the US.