Online Retail Saving The Day

According to numbers presented by the National Retail Federation, U.S. holiday retail sales from brick-and-mortar outfits will be down 1% this year. On the other hand, comScore (SCOR) expects online retail sales to be up 3% in November and December.

The online retail segment is still a very small portion of the retail market (only 7% of total retail sales according to Forrester Research). However, there is good reason to believe that the segment will continue to grow into a larger share of total retail sales.

While online retail companies, such as Amazon.com (AMZN: 131.74 -2.29 -1.71%) and eBay (EBAY: 23.22 -0.39 -1.65%) have been around for a while, the number of traditional retailers exploring the area continues to grow. For example, Target Corp. (TGT: 47.70 -0.13 -0.27%), Best Buy Co. (BBY: 42.83 -0.43 -0.99%) Toys R Us and Wal-Mart Stores (WMT: 54.63 -0.33 -0.60%) have started their online stores.

Customers usually opt for online purchasing due to its convenience, or when they need to save time. Additional advantages include reviews by previous buyers, which reduce chances of bad buys and bargains and promotions, which bring down costs. However, most online retailers push the cost advantage the most, which is a pressure on margins.

With the economy still in the doldrums and unemployment rates still so low, consumers have an eye on their purse strings. Therefore, marketing programs this holiday season are targeted at budget spending.

eBay’s holiday deals include free shipping, discounts and guaranteed returns on new items. The company has also tied with Microsoft (MSFT: 29.22 -0.57 -1.91%) for a place in the favorites menu of Internet Explorer 8. The space is being used to offer information on its Daily Deals. Amazon.com and Walmart.com also offer similar benefits, including the limited-time offers.

Target.com has shown a bit more ingenuity, offering shopping tools such as a gift tracker that could help the user shop within budget and a Holiday 101 list that includes holiday necessaries that are likely to be overlooked.

The bottom line is, consumers intend to spend less this year, so older products on which prices have been lowered, such as Apple’s (AAPL: 200.59 -3.60 -1.76%) iPod touch, Nintendo’s (SNE: 26.68 -0.78 -2.84%) PS3 and Amazon’s Kindle are likely to remain hot. Garmin’s (GRMN: 31.01 -0.82 -2.58%) GPS products and Hewlett-Packard’s (HPQ: 49.07 -0.98 -1.96%) mini netbooks are also expected to do well.