For U.S. consumers today, shopping till you drop is out, thrift is in.

Inflation, rising unemployment, and high gasoline prices are pressuring consumers, even the most affluent, to rein in their spending and focus on getting value for their money. As we see it, consumers are likely to be especially discretionary in their discretionary spending during the forthcoming holiday shopping season. According to industry veterans like Mickey Drexler, chief executive officer of J. Crew, this holiday season may be the softest in 40 years, with most retailers hard-pressed to boost sales from last year’s levels.

Even so, we are still finding retailing companies that in our estimation should do just fine over the holidays. We think what may largely distinguish the winning retailers from the also-rans will be the strength of their e-commerce.

Growth in the double digits

Indeed, e-commerce is proving increasingly critical, inasmuch as it’s the fastest growing segment of retailing. In the year-to-date, in-store sales have been up only modestly, but e-commerce sales have been rising at a double-digit annualized rate. For instance, in the first half of the year, online sales rose 11.2% from a year ago, compared with 0.4% for total sales, the Census Bureau reports. As we see it, e-commerce represents the best opportunity that retailers have today to gain market share, build greater brand recognition, and keep the sales curve rising during what’s likely to be a lackluster holiday shopping season.

According to recent market surveys by Nielsen and others, shoppers are cutting back on spending and gravitating to the Internet mainly for two reasons: 1) they are finding the best bargains and a broad selection of merchandise online and 2) they can save gasoline and time by buying online instead of at the mall. About 70% of consumers did at least a portion of their holiday shopping on the Web last year, and we think even more consumers will do so (and spend about 15% more online) this year.

In anticipation of holiday shopping, retailers are expanding and upgrading their Web sites, adding features that have proven to generate more sales, such as customer reviews, product ratings, product videos, and social-networking blogs. Their goal is to exploit the growing clout and cost-effectiveness of e-commerce. As one of our industry contacts put it, "Retailers love e-commerce because it provides sales growth without real-estate costs." Here are a few examples from the growing body of evidence about which online features stimulate sales:

*  Shoppers buy 50% more on average after viewing a video online than they do if just text and a product photo are available, according to the Internet Retailer Web site.

*  More than 80% of online shoppers say consumer-written product reviews and ratings are a significant influence in their buying decisions, a Deloitte & Touche survey notes.

*  A retail Web site with personalized shopping recommendations attracts 45% more traffic than a site with no recommendations, according to ChoiceStream, an Internet-technology company. And consumers who spend the most online -- those from households with incomes of $100,000 or more, who account for about 30% of e-commerce -- like personalized recommendations the most.

To us, the potential of consumer blogs and social networks (MySpace, Facebook, Twitter, et al) as e-commerce tools is especially promising. Blogs and social networks should increasingly help retailers create buzz for their products, market products to specific consumer segments based on their shopping interests, and encourage consumers to express their brand preferences to others online. And in the process, e-commerce will likely be supplemented by "m-commerce" (short for mobile commerce) -- consumers interacting with each other, sharing information, and shopping online via their handsets and smart phones, wherever they happen to be.

For instance, Urban Outfitters is a Web-savvy retailer. In our judgment, its Web site is honing the company’s already razor-sharp ability to understand its customers and connect with them emotionally. The company has built a community of young customers (who tend to be recent college graduates) via a Web site that accommodates two of their favorite pastimes: text messaging and blogging.

Dome houses, anyone?

The Urban Outfitters site contains a mixed bag of people and topics that the company thinks customers may be interested in -- whether those people and topics happen to pertain to retailing and Urban Outfitters or not. For instance, a recent online article reported on affordable, environmentally friendly dome houses in Japan. And in a practice that might be considered marketing heresy by rivals, Urban Outfitters’ site includes links to -- gasp -- other retailers.

According to retail blogger Paul Anthony of Webdistortion.com, in a world that’s as drenched with hype as a sopping wet towel, Urban Outfitters’ unconventional, soft-sell online approach is appealing because it "[doesn’t] shove products down consumers’ throats" but instead gives them "a reason to return and read." Customers convinced of the merit of returning to the site can enroll in the company’s text-messaging service and receive early notices of the latest products, news of special in-store events such as concerts, and exclusive shopping offers. They can even make purchases by text message, an online capability that Urban Outfitters helped to pioneer.

In light of all that, we think Urban Outfitters appears well-prepared to ring up above-average sales over the holidays. And we think three other retailers have e-commerce businesses that could help them generate higher holiday sales this year: Amazon.com, Kohl’s, and Staples. In the case of Kohl’s, Staples, and Urban Outfitters, e-commerce is a relatively small but fast-growing source of business; in fact e-commerce, not stores, has been responsible for much of their sales growth. (Amazon.com, the world’s largest online retailer, has no stores; all of its sales originate online.) We don’t think it’s at all coincidental that over the past five years Amazon.com, Kohl’s, Staples, and Urban Outfitters have expressly emphasized e-commerce and multiplied profits at a higher rate than sales.

#1 in satisfied customers

Amazon.com (market capitalization: about $35 billion) has consistently earned the best ranking of any online retailer for customer satisfaction, in surveys conducted by the University of Michigan. That satisfaction has resulted in a large, highly loyal customer base (81 million) that makes regular purchases from Amazon (an average of $184 annually, totaling about $15 billion). Amazon’s sales constitute 10% of all online sales and are more than double those of its nearest competitor. And the sales gap between Amazon and the competition is widening.

Amazon has expanded from its core business of selling books to offering CDs, movies, toys, appliances, and groceries, among other things. "Media" products (books, music, and movies) account for a gradually diminishing slice of the company’s total sales and should decline further, from 59% today to 49% in 2012, in our estimation. Electronics and other merchandise, in contrast, should grow from 38% now to 48% in 2012. Amazon sells the products of more than 1 million entrepreneurs, manufacturers, and retailers, creating a virtuous financial circle for itself. Internet Retailer observes: "More customers coming to Amazon make it a more attractive platform for other merchants, while more merchants selling on Amazon lead more consumers to start their shopping at Amazon.com."

Kohl’s (market capitalization: about $15 billion), the 63rd largest Internet retailer, continues to profitably beef up its online business, even adding items such as furniture that aren’t available in its stores. The company generated online sales growth of 30% in the first quarter versus the year-earlier period. First-quarter e-commerce sales of $63.6 million represented 2% of Kohl’s sales but 29% of its sales growth.

Kohl’s growth in gross margins is beating the expectations of the consensus of Wall Street analysts. The company’s competence not only in e-commerce but in inventory management has contributed to that growth, in our analysis. Kohl’s recently raised its earnings guidance for 2009, on the heels of admirable past performance: net income has soared 99% over the past five years.

Staples (market capitalization: about $17 billion) is the world’s largest office-products company and second-largest e-retailer. In 2007 Staples’ e-commerce produced sales of $5.6 billion, or 29% of total sales and, more significantly, 58% of sales growth. Its e-commerce sales continue to grow twice as fast as its overall sales and come from 21 countries. The company has stores in 27 countries, many of which were acquired in a $2.7-billion acquisition of Corporate Express, an office-products company based in the Netherlands, last July.

Staples’ North American office-products business is the most profitable in the industry. Companywide net income in 2007 was $995.7 million, up 121% since 2003. Going forward the company expects to fatten profits further with its expanding line of branded, discounted products, which provide more than 20% of sales.

Urban Outfitters (market capitalization: about $6 billion) wants to grow by selling more merchandise online as an alternative to risking over-saturating the market with stores. The company plans to limit the number of its Urban Outfitters, Anthropologie, Free People, and Terrain stores globally to about 250 each, in the belief articulated by Richard Hayne, the firm’s founder and chairman, that "big is the enemy of cool."

That Web-centric strategy seems to be, uh, clicking: in 2007 Urban Outfitters’ online sales increased 34%, to $185 million, while total sales rose by 23%, to $1.5 billion. Overall sales have grown at a compound annual rate of 29% over the past five years; net income, at a 35% rate.

The views expressed represent the opinions of Turner Investment Partners as of the date indicated and may change. They are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. Opinions about individual securities mentioned may change, and there can be no guarantee that Turner will select and hold any particular security for its client portfolios. Earnings growth may not result in an increase in share price. Past performance is no guarantee of future results.

Turner Investment Partners, founded in 1990 and based in Berwyn, Pennsylvania, is an investment firm that manages more than $26 billion in stocks in separately managed accounts and mutual funds for institutions and individuals, as of June 30, 2008.

As of August 31, 2008, Turner held in client accounts 1.8 million shares of Amazon.com, 4.7 million shares of Kohl’s, 9.9 million shares of Staples, and 4.7 million shares of Urban Outfitters.