After speeding past the $100-billion mark just three years ago, online sales will top $200 billion this year. According to The 2006 State of Retailing Online, the ninth annual study conducted by Forrester Research, Inc. (Nasdaq: FORR) of 174 retailers, 2006 online sales (including travel) are expected to rise 20 percent to $211.4 billion. Sales excluding travel will reach $138 billion.

The largest non-travel categories this year will include computer hardware and software ($16.8 billion), autos and auto parts ($15.9 billion), and apparel, accessories, and footwear ($13.8 billion). Pet supplies and cosmetics and fragrances are expected to experience growth rates over 30 percent, more than any other categories.

According to the report, online sales last year rose 25 percent to $176.4 billion. Excluding travel, online retail sales rose 28 percent to $113.6 billion, representing 4.7 percent of total retail sales in 2005.*

Retailers Invest In Integration To Increase Sales
As customers increasingly use the Internet to compare prices, find gift ideas, and research products, retailers rely on their Web sites not only to sell merchandise but also to increase sales at their stores. To create a true multichannel environment, retailers are employing a variety of different strategies. More than two-thirds of retailers have consistent pricing across channels (79%) and almost half (46%) allow their customers to buy and redeem gift cards online and in stores. Additionally, a notable number of companies give customers the ability to accrue loyalty program points across channels (33%) and offer in-store product information online (26%).

“By encouraging different channels to work together, instead of in isolation, everybody wins,” said Scott Silverman, Executive Director of “Retailers have been focusing on integrating their Web sites and stores to better serve their customers, which is paying off for companies in the form of higher sales.”

Retailers recognize the importance that the online channel plays in overall sales. In fact, retailers reported that 22 percent of offline sales are influenced by the Web. Web sites can also give retailers an opportunity to reach out to an entire new customer base, as more than one-third (38%) of online customers are new to a company’s entire business.

Customer Security Remains Primary Goal
Retailers understand that some shoppers may be concerned about the safety and security of their personal information when shopping online. In response, companies continue to increase the security of their Web sites and are beginning to offer a variety of payment methods to online shoppers.

According to the report, 63 percent of retailers surveyed require card verification value (CVV) codes at checkout. For payment, 25 percent of retailers accept private-label cards, 12 percent offer third-party email payment options, nine percent accept eChecks, and seven percent offer third-party credit accounts.

Innovation On The Horizon
The 2006 State of Retailing Online concludes with an analysis of the future of online retail and says that retailers have spent much of the past year developing long-term forecasts, budgets, and personnel plans. These new initiatives are still in the planning stages and are expected to launch within the next two years.

“Retailers spent the first decade of eCommerce scrambling to react to and learn about the Internet,” said Carrie Johnson, lead author of the report and Research Director, Vice President at Forrester Research. “Companies are now able to take a step back and are busy planning strategies and prioritizing technology investment for the long term. As a result of these efforts, the next five to ten years of online retail will be even more competitive and more innovative than in the past.”

* “Retail Sales” exclude travel and include the following categories: computer hardware and software; autos and auto parts; apparel, accessories, and footwear; home furnishings; consumer electronics; music and video; food, beverage, and grocery; appliances and tools; toys and video games; gift cards and gift certificates; sporting goods and apparel; office supplies; books; event and movie tickets; jewelry; flowers and cards; baby products; computer peripherals; over-the-counter medicines and personal care; cosmetics and fragrances; and pet supplies. These are not the same categories that the National Retail Federation tracks; therefore, the numbers are not comparable.