Online sales in 2004 rose 23.8% to $141.4 billion, according to recent report. Excluding travel, online retail sales rose 23.8% to $89 billion, representing 4.6% of total retail sales. The study predicts the jewelry and luxury goods will be one of the strongest sales growth categories for 2005.

The report, titled, The State of Retailing Online 8.0, is an annual Shop.org study of 137 retailers conducted by Forrester Research. It predicts that online sales (including travel) will rise 22% to $172.4 billion this year. Sales excluding travel are expected to reach $109.6 billion.

Several retail categories will experience steep growth this year, largely due to the growing acceptance of online shopping by women, according to the study. Among the categories expected to rise dramatically in 2005 are: cosmetics and fragrances (33%), over-the-counter medications and personal care (32%), jewelry and luxury goods (31%) and flowers, cards, and gifts (30%).

“Though initially adopted by men as a shopping tool, women are flocking to the Internet in droves to comparison shop, research, and buy,” said Scott Silverman, executive director of Shop.org. “Online retailers who sell products that are purchased by women are in a favorable position this year, as we expect those categories to grow substantially.”

Multichannel retailers again posted record profitability last year. Online retailers improved overall operating margins to 28% from 21% in 2003. Catalog-based retailers continue to boast the best operating margins, which rose to 32% last year from 28% in 2003.

“With profitability behind them, retailers can now focus on innovation and growth through things like increased integration of their online and offline businesses and internationalization of their sites,” said Carrie Johnson, lead author of the report and principal analyst at Forrester Research. “One way retailers will grow sales over the next several years will be by launching country-specific sites and operations to accommodate a growing number of international customers.”

This year, search engine marketing appeared as the clear leader as a source of new customers, according to the study. Retailers reported that search engine marketing delivered 43% of overall customers to their sites. In 2004, 87% of retailers who participated in the study used pay-for-performance search placement and spent more than twice as much from their marketing budgets on this category than they did in 2003 ($877,630 in 2004 vs. $399,923 in 2003).

Retailers reported that the Web influenced 20% of in-store sales. As a result, retailers are striving to integrate their stores and websites, which signals cooperation among channels.

Last year, almost all (92%) multichannel retailers included URLs on in-store materials, up from 77% in 2003, according to the report. The majority of retailers (81%) also used Web sites to tout their stores. Additionally, 45% allowed consumers to purchase and redeem gift cards online and in stores, up from 30% in 2003. And 24% of retailers offered in-store product availability on their Web sites last year.

JCK