A recent Shop.org study conducted by Forrester Research looked at 137 retailers and found that 2004 online sales rose 23.8 percent to $141.4 billion.

The report also noted that online retailers are doing more effective search-engine marketing, and have streamlined multichannel retailing.

Demographic Shift

One of the most notable trends in the past year has been in the growth of a few specific retail categories, the report stated.

According to the research, categories with products purchased largely by women will see the most growth in 2005. Online sales of cosmetics and fragrances are expected to grow 33 percent, and similar surges are anticipated in sales of jewelry, flowers and gifts.

"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."

Profit Prowess

Beyond the rise in more women shoppers, it is the boost in profitability that surprised Carrie Johnson, Forrester analyst and lead author of the report.

"The profitability shouldn't be underplayed," she said. "It's a very impressive feat, the way the operating margins have changed."

Last year, online retailers improved overall operating margins to 28 percent from 21 percent in 2003, the report noted. Catalog-based retailers had the best operating margins, going from 28 percent in 2003 to 32 percent a year later.

Finally Getting It

One of the main factors driving better profitability has been better integration between online and offline divisions, Johnson noted.

In the past, redundancies in staff, fulfillment and marketing had dragged e-commerce efforts down with unnecessary costs. But, after a decade of trying to get it right, it seems that many e-tailers are finally getting the hang of it.

"They're much better at leveraging offline resources, and integrating operations across channels," Johnson said.

But she added a note of realism, as well: "It's a good sign that these profit numbers are so high, but it's likely to level out in the near future. This kind of growth can't last forever."