You'd think that online retailers would be absolutely gloomy these days.

The economy is still in the doldrums. Several large retailers, including industry leader Wal-Mart, announced that their September sales would be at the low end of expectations. And consumer spending, which has been credited with mollifying the recession thus far, is running out of steam; at the end of September, the US Commerce Department reported that consumer spending rose by a lethargic 0.3 percent, compared with 1 percent in July.

But oddly, things are looking up for consumer e-commerce. Internet shoppers in the United States will increase their annual online spending from an average of US$866 in 2001 to US$1,089 by the end of 2002, estimates E-Marketer in a recent report on online retailing. Upcoming 2002 holiday sales will grow by 27 percent over last year, from US$10.8 billion in the fourth quarter of 2001 to US$13.8 billion in the fourth quarter of 2002, estimates ComScore Networks. And a bit farther down the road, E- Marketer expects Internet consumer spending to grow to US$1,249 per consumer in 2003 and to US$1,400 per consumer in 2004.

What explains the growth in consumer spending? Consumers are providing retailers with an increasing amount of repeat business. For example, 70 percent of Bluefly's online transactions were from repeat customers in the second quarter of 2002 compared with 45 percent of the company's sales in the second quarter of 2000.

Consumers seem to have become more comfortable buying online--perhaps in response to better service. Online retailers are more experienced and seem to have a much better feel for what works and what doesn't. Thanks to that, they're operating more efficiently and many are on the verge of profitability.

A few things have already helped companies streamline online sales. Operating margins have improved from a net loss of 14 percent in 2000 to a net loss of 6 percent in 2001, according to a joint survey by Shop.org and the Boston Consulting Group, which expect most retailers to become profitable this year.

"The upfront costs of setting up a Web site are out of the way and margins are beginning to fatten up," says Steve Butler, senior analyst with E-Marketer. "Online retailers are getting more efficient about staffing and the technology has also improved," he adds.

The efficiencies show up in a number of areas. Retaining customers reduces customer acquisition costs--which have fallen steadily from an average cost of US$38 per new customer in 1999 to US$14 per new customer in 2001, according to Shop.org and the Boston Consulting Group. Retailers have also cut marketing costs from US$26 per average order in 1999 to US$12 per average order in 2001, according to the same survey.

Sites are also streamlining their sites so it's easier for consumers to shop. The average number of clicks required to complete an online transaction has fallen from 8.76 clicks in the fourth quarter of 2000 to 5.36 clicks in the fourth quarter of 2001, according a survey from the Direct Marketing Association's e-tailing group.

But there are many more ways that online retailers can streamline their processes yet.

Invest in content management. Content costs can bleed away margins. Without an effective content management system, retailers may be spending too much on extra staff to update product information and promotions. It's also slower and less flexible to manage content manually.

Exercise caution when buying new technology. Part of cost containment is being conservative about purchasing new technology. Sometimes the technology doesn't pan out because of an immature set of features, because consumers just aren't ready for a new technology, or because it's just a bad idea. Forrester Research recommends holding off on a new technology until 30 percent of the retailers in your segment adopt it.

Select merchandise carefully. Some items work better online than others. For example, it's harder to sell clothing than books or electronics online. Many online retailers have improved their performance by reducing the number of items they sell online and concentrating on items that are a better fit.

Focus on customer retention. Finding a new customer costs five times more than keeping an old one, according to Gartner. Retailers must retain customers before they are receptive to cross-selling. Smart retailers concentrate on improving their relationships with existing customers by offering them improved customer service, special discounts, and informational email newsletters.

Whether companies will actually shake off the economic woes and pay heed to the optimistic statistics for growth in online spending is still up in the air.

According to a recent Gartner survey of US and European retailers, 45 percent of the respondents said that spending on their companies' Web site was a priority--a strong indication that many online retailers are aware of the growth in online spending and plan to continue honing their Web sites to take advantage of it.

However, many other retail sites seem to be unprepared for imminent growth--possibly because they are distracted by the overall economic downturn. Without adequate preparation, they may end up leaving money on the table. And besides, most of these tips also condition a retail site for the long haul.

You win either way--you'll be in better shape by capitalising on increased consumer spending or by improving efficiency.

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