Internet retail sales have grown for a decade now, but they still represent only a small portion of overall retail sales. However, cheaper costs and new technologies such as search engine optimization, social media and mobile shopping are providing attractive growth opportunities for retailers small and large.

Online sales made up only 3.7 percent of retail’s total receipts during the third quarter of 2009, according to the U.S. Census Bureau. This is especially low when compared to other industries. About one-fourth of manufacturing’s total sales come from online shopping, and manufacturing shipments represented 35 percent of e-commerce in 2007, according to the Census Bureau’s latest data.

Retailers did not initially focus on their Internet marketing strategies because online sales represented such a small percentage of their total business, says Jan Sisko, media and analyst relations strategist with public relations firm Carabiner Communications.

But while retail sales dropped 6.2 percent last year as compared to 2008, non-store retail sales had a milder decrease of 0.9 percent during the same period, according to the Census Bureau. Also, retail online sales had a 5 percent jump during the holidays while the industry’s total sales rose only 1.1 percent, according to the National Retail Federation, an industry trade group.  

Elizabeth Hill, owner of Elizabeth Cotton, a New York luxury sleepwear company, saw her e-commerce sales continue to grow in 2008 and 2009 even while her total sales declined. When her wholesale clients, such as Neiman Marcus and independent boutiques, reduced their inventories, “many customers who were accustomed to buying our products in their local, intimate apparel stores were unable to find them,” Hill said. Those customers “then proceeded to go home and purchase our products directly from us online. In 2009 over 65 percent of our total sales came from our e-commerce and it was our most profitable year ever.”

Retailers may have been slow to focus on their online sales because it required a significant investment. “There used to be a high entrance barrier because of the costs and competition. Many smaller companies were not willing to take a risk and go into an unknown business”, said Courtney Hill, chief executive officer of Chicago-based marketing firm MarketM.

But costs are coming down due to modular, ready-made Web pages that can be downloaded for free. Also, PayPal, the online payment system owned by eBay Inc., allows companies to sell merchandise online for a 1.9 percent to 2.9 percent commission. Outsourcing an online retail site has also gotten cheaper. Costs can range from about $20 a month to several hundred dollars depending on the Web site’s size, traffic, functions and customization levels.

Some retailers have been reluctant to dilute their traditional “brick-and-mortar” business model. Many believed customers would not be likely to buy furniture or apparel unless they could sit on those couches or zip on those pants. “One of the biggest issues that retailers have struggled with is duplicating the in-store shopping experience, online,” said Sisko at Carabiner Communications.

Businesses are starting to overcome this hurdle by using devices to replicate, and even improve, the store experience. Eileen Looby, vice president of Lake Forest Flowers in Lake Forest, Ill., said she launched her family business’s Web site to get more exposure and started to sell products online a few years ago. “People might think that flowers are hard to sell through a Web page, but we increased sales and were able to reach consumers outside of Lake Forest,” Looby said. She finds that the best way to attract customers is with frequently updated pictures. 

Some experts think the Internet can even improve in-store shopping because it can provide more information and detail on products. “If I want to buy a super-specialized barbeque, I’d rather have five screen views of information, a video demonstration on what it can do and other consumers’ comments, as opposed to one sales person with a couple of bullet points,” said Darby Williams, vice president of the retail consulting firm PowerReviews, in San Francisco.

But for all these tools to work, retailers have to get consumers to come to their Web pages and consummate purchases. Ayat Shukairy, the co-founder and managing partner at Invesp, a marketing and e-commerce firm in Farmington Hills, Mich., said “the only way for consumer companies to increase their online market share is through aggressive search engine optimization and social media optimization.”

Search engine optimization  is the practice of designing Web pages so they rank high in Internet search results. Social media optimization is a the process of attracting visitors to Web sites by promoting and publicizing them through social media such as Twitter and Facebook.

Shukairy emphasizes that the way to translate that traffic into purchases is to “observe general market trends and to study the company’s specific consumer to enhance the site and make it more appealing to their visitor.” Invesp reported an average increase of 65.7 percent in its clients’ online conversion rates (actual purchasers as a percentage of site visitors), and a 109 percent increase in online revenue in 2009. Clients are willing to pay for up to $8,000 a month for this kind of “enhancement”, Shukairy said.

One of the business owners willing to make that investment was Loopy of Lake Forest Flowers. “One of the obstacles of launching a Web site was the investment we had to make in search engine optimization to make sure our site was top listed. But it absolutely pays off.”

The next step in e-commerce is mobile commerce, or shopping through mobile phones, says Marc Reiser, chief marketing officer of Long Beach, N.Y.-based Planet Payment. Sears Holdings Corp., based in Rolling Meadows, Ill., launched an aggressive online campaign last year to boost its sales, and among its latest projects is a mobile application that offers customers merchandise based on their location.

E-commerce inched its way up in retail sales last year, from 3.5 percent in the first quarter to 3.7 percent in the fourth quarter. The business information firm eMarketer, in New York, forecasts an increase in Internet retail sales to more than $189 billion by 2013, which would represent a 10 percent compound annual growth rate from 2009 to 2013.

Loopy took a risk years ago when she bet on selling flowers through the Web and now she said, “If a business doesn’t have a Web site by now, I don’t expect them to last more than two years. That is how strongly I feel about it.”