Forrester reported that 137 retailers nationwide spent an average of $877,630 search-engine ads in 2004, compared to $399,923 in 2003. At the same time, their average spending at portals dropped to $862,974 last year from $894,595 in 2003. The retailers also said search marketing was responsible for 43 percent of traffic to their Web sites.

U.S. online retail sales grew 23.8 percent last year to $141.4 billion--and, excluding travel, e-commerce grew 23.8 percent to $89 billion, accounting for 4.6 percent of retail sales in all channels. The report projected that 2005 online sales, including travel, will rise 22 percent to $172.4 billion. The online sales figure, excluding travel, is expected to reach $109.6 billion.

The report, Forrester Research's State of Retailing Online 8.0, conducted for the National Retail Federation's Shop.org, e-commerce division, concluded that select retail categories--cosmetics, jewelry, flowers--will experience sharp growth this year thanks to women's new embrace of e-commerce.

Online sales of cosmetics and fragrances are expected to jump 33 percent to $1.6 billion this year, while sales of over-the-counter medicines and personal care are forecast to grow 32 percent to $1.3 billion. At their current growth rate, online sales of jewelry and luxury goods will see a 31 percent gain to $3.2 billion, while flowers, cards, and gift purchases could rise 30 percent to $4.8 billion, according to the Forrester report.

Retailers are continuing to link their online and store-based operations by providing shoppers with Web kiosks at brick-and-mortar locations, and allowing shoppers to buy and redeem gift cards online and in stores. More than 90 percent of traditional retailers include their Web site address on in-store materials, up from 77 percent two years ago, Forrester found.

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