Holiday Online Sales To Come At A Cost To RetailersHoliday Online Sales To Come At A Cost To Retailers

While online retailers are not expected to receive coal from Santa Claus this holiday season, they are expected to see profit margins shrink, a research firm said Tuesday.

Online holiday sales are expected to reach $26 billion this year, an increase of 18 percent over last year, JupiterResearch said.

The sales number was higher than that from rival Forrester Research, which projected on Monday a 25 percent increase from last year to $18 billion.

Individual consumers are not expected to spend more this holiday season. Instead, sales will be driven by an increase in the number of shoppers, JupiterResearch said.

Shoppers are expected to penny pinch because of rising energy prices, which has made free shipping more important this year to 56 percent of consumers, JupiterResearch said. Therefore, retailers will need to offer free shipping incentives, while at the same time paying higher fuel surcharges on order shipments, and spending more on energy in general.

Despite the expected energy-induced drop in profit margins, free shipping will be needed to avoid losing business to competitors

"It's table stakes," JupiterResearch analyst Patti Freeman Evans said. "You have to ante up the same amount just to play."

Not all shoppers, however, are expected to be Scrooges. Young men who have been shopping online for less than a year are the most likely to open their wallets wider, with the right marketing message, Evans said. These newcomers are expected to be the most susceptible to campaigns that focus on avoiding malls, saving gas and other conveniences.

The fact that macroeconomics is having an impact on online holiday sales is a sign of a maturing market, Evans said. At 11 years old, the market is "still in short pants," but it is no longer immune to conditions that affect the industry as a whole.

Nevertheless, there's lots of room for continued double-digit growth. With projected sales of $79 billion this year, versus $66 billion last year, online retail accounts for only 4 percent of the $1.9 trillion U.S. consumers are expected to spend this year, JupiterResearch said. In addition, 35 percent of online consumers have yet to make an online purchase.