A new study from Forrester Research predicts that despite the current economic gloom, online retail spending by US consumers will rise by 17% this year to $204 billion.
The study of 125 retailers for Shop.org, the online arm of the National Retail Federation, found apparel is likely to be the largest online sales category in 2008, accounting for an expected $26.6 billion. This is followed by computers at $23.9 billion, and autos at $19.3 billion.
But Scott Silverman, executive director, Shop.org, warns that despite the bullish predictions, e-retailers are still vulnerable to the economic situation.
"From higher shipping costs to changes in consumer shopping habits, online retailers are not immune to the current economic climate," he says.
However the report does say that growth in the online retail market will slow as the number of people new to the Internet begins to wane and retailers struggle to decide whether to invest in strategies that retain current customers or those that attract new ones. According to the study, online retailers allocate 53% of their marketing budgets to customer acquisition and 21% to retention.
The research also suggests that online retailers will increasingly look to social networks to attract new customers. Of those questioned, 65% say they will increasingly focus on social network advertising and 55% will turn to widgets.
But Forrester strikes a note of caution, claiming social networks have been considered more effective for brand-building and less proven for driving revenue or sales conversion. Therefore retailers need to continue investments in proven techniques like e-mail marketing and free shipping promotions to drive sales.
Search engine marketing continues to be the most effective way to reach new customers, accounting for 35% of online sales. But one technique that looks to be losing favour is the offer free shipping to customers. While 85% of online retailers say they used some shipping promotions in the past, just 35% say they will focus more on these types of offers in 2008.