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What's Driving Online Retail?

AP

Is online retail the only avenue of real growth in this sector? Keep in mind that this part of the market still only represents 7 percent of overall sales.

That said, it does seem that online retail is bigger than ever. Internet sales are benefitting from the same headwinds that that are hurting sales at brick-and-mortars.

High gas prices help convince consumers to consolidate trips to malls and helps stores to cut back on costly bulk shipments to malls (inventory management).

Online buying lends itself to consumers hunting and pecking--rather than hitting the malls at a time when we're not seeing much fashion newness to drive demand into brick-and-mortar stores. Online sales are forecast to be up 17 percent at $204 billion this year, according to a study out today from NRF/Forrester Research.

What is interesting to me are the different ways that Internet stores are reaching customers to bring them "in store"--online.

One of the most effective ways is also one of the cheapest: Forrester's study shows that e-mails sent to repeat customers by stores involves the cheapest marketing cost ($6.85 is the average cost per order), while yielding a high average order value ($120.27 average order value.)

Search engine shopping is also among the cheapest ($8.63 average cost per order) while yielding a high return ($109.73 average order value.) These cheap marketing tools are helping retailers maximize profits.

Another standout: the untested social networking sites are among the costliest/lowest-yielding marketing methods ($50.11 cost per order on an average order value of $168.80). Online banners are even more expensive.

Which lead me to a question: Are Google and other search engines truly the main beneficiaries of the growth in retail? Is this "retail trade" really more of a "tech play"?

Questions? Comments? retaildetail@cnbc.com

Retail

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