Online retail sales hit $175 billion in 2007, a 21% gain over 2006, according to a January Forrester Research report, "US E-commerce Forecast: 2008 to 2012."

After years of 25% growth or more, last year marks the first significant drop in growth. Forrester expects this trend to continue as the e-commerce sector matures. The research firm predicts 17% growth in 2008, falling to 11% by 2012. At that time, the market will be worth $334.7 billion.

“While on the surface, declining year-over-year growth percents for online commerce may represent a maturation of the e-commerce industry, it is important to also recognize the industry will add approximately $30 billion in additional revenue every year for the next five years," notes Sucharita Mulpuru, principal analyst and author of the report.

The report also notes some challenges that lie ahead. Most consumers prefer to shop in stores, e-commerce is becoming highly seasonal and online shoppers tend not to browse.

Ms. Mulpuru suggests improving the user experience by "employing more tools like rich Internet applications or alternative payments or more robust cross-sell tools. The user experience online still is largely subpar and improvement there alone can help many e-retailers grow.”