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High gas prices boost online sales

As higher gasoline prices cut into cash-strapped American consumers' budgets, some have decided to take the money they save by not driving and shopping online.

That has prompted retailers — from global giant Walmart to online pioneer — to invest heavily in expanded operations to better capture Web-based sales.

As the nation's retailers post results for the latest quarter, online shopping grew more than twice as fast as overall sales. In the second quarter, e-commerce retail sales rose 3.0 percent from the first quarter of 2011, compared to just 1.2 percent growth in total sales, according to data release this week from the Census Bureau. Online sales are up 17.6 percent over last year.

The gains come as gasoline prices have nearly doubled in the past two years. Those rising pump price are helping to fuel the growth in Web-based shopping, according to Global Insight economist Erik Johnson. Web-based comparison shoppers are also trying to stretch their stagnant wages as far as they can.

"Tighter financial conditions have consumers scouring the Internet for discounts on the things they need, and online retailers have collectively benefited," Johnson said.

Total online retail sales hit $47.5 billion for the quarter, still a fraction of the roughly than $1 trillion in total retail sales rung up in the quarter. But the growth of online sales continued to outpace overall gains in the second quarter, rising 14 percent from a year ago, according ComScore, an online research company. Online sales have been up double-digits for the last three quarters.

Consumer electronics and computer hardware and software were the top selling categories. Most of the growth came from a 16 percent increase in the number of people who shopped online. Roughly 70 percent of all Internet users made at least one online purchase in the quarter.

The boom in online sales hasn't always translated into higher profits as many retailers continue to invest in expanding online operations to meet the increased demand. said last month that its second-quarter profit fell 7 percent; although sales jumped 51 percent, operating expenses rose by 54 percent. The company also said it continues to invest heavily to upgrade operations, expand offerings and serve higher customer volumes. So far this year, Amazon has announced construction of 15 new order-filling centers. In a conference call with reporters, Tom Szkutak, Amazon's chief financial officer, said he expects that number to rise.

Although gas prices have eased this summer as oil prices have come off their highs, consumers are still paying roughly twice as much to fill up at the pump as they did two years ago. Gas price may continue to ease somewhat, but no one is forecasting a drop back to 2009 levels anytime soon.

So far, online sales remain concentrated among relatively few players; two-thirds of online spending goes to the top 25 online retailers, according to ComScore. But the growth in online shopping has prompted some offline stores to overhauling their businesses to capture a bigger piece of the web shopping pie.

Although it reported higher second quarter profits this week on strong growth overseas, Wal-Mart has been struggling to reverse a two-year sales slump at its U.S. stores. That business has suffered as high gas prices and the economic downturn have hit low-income Americans hardest.

To better capture a bigger share of online sales, Walmart recently reshuffled its online operations to better integrate Web traffic with store traffic. The world' largest retailer is moving to a strategy the company calls "continuous channel shopping" to attract more customers who research products on line, according to William Simon, head of the company's U.S. operations. Roughly 60 percent of the retailer's online sales involve merchandise that customers pick up at local Walmart outlets.

Old line retailers like J.C. Penny are also seeing a pop in sales online as they transition their direct-mail catalogs to the Internet. CEO Mike Ullman told investors last week that the company has begun offering a wider selection of inventory on its website to better reach the 27 million customers who in the past could only find certain items at J.C. Penny stores.

"We now have aligned our assortments and we are getting I think something in the range of 12 percent to 20 percent increases in the apparel categories online now," said Ullman. "That's a younger customer, so we don't think there is any inhibition to shopping with us online."

As they bring in higher sales volumes, retailers are also using their Web sites to expand their customer base. One third of Nordstrom's new customers, for example, first visit the store online.

"We think that, over time, as the online channel becomes a larger portion of our overall sales, that it will become an even more important customer acquisition channel," said Jamie Nordstrom, president of the company's online operations.