Forrester: Retailers' Search Spending Doubled In '04

Retailers doubled their spending on search engine advertising in 2004, while cutting back slightly on traditional portal deals with companies such as Yahoo!, America Online, and MSN, according to a Forrester Research report released Tuesday.

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.

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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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