Web Retail's Higher-Fliers

Amazon.com stock closed Friday at $90 a share, up 135 percent over a year ago. As buyers snap up everything from "Harry Potter" books to motor oil at the granddaddy of online retailers, its stock's nightmarish plunge from $106 to less than $6 a share after the tech bubble burst seems a distant memory.

And it's not just Amazon. Over the past year, shares of Blue Nile, a jeweler, have increased 103 percent; 1-800-Flowers.com, 124 percent; and GSI Commerce, a company that manages Web sites for retail companies, 45 percent.

Internet retail has been the bright spot in the sector for investors this year. People are more secure shopping online these days, according to analysts. Security breaches may still be a concern for some shoppers, though those can happen even at brick-and-mortar stores, said Patti Freeman Evans, an analyst at Jupiter Research, recalling the hacking of databases at TJX, which owns T.J. Maxx and Marshalls.

There are other reasons Internet shopping is up: It gives consumers more choice and is convenient. It saves on expensive gasoline. Broadband has gotten cheaper, and more households have Internet access: about 75 percent and growing rapidly, according to research firm Sanford C. Bernstein.

If the companies can get customers to their Web sites, it's often easier to make a profit that way. Operating costs are lower than traditional retail because of lower rent, inventory and personnel expenses. The customers are the kind retailers crave: Half of all online retail sales come from people with household incomes of more than $75,000, according to Jupiter Research.

Still, online shopping has a long way to go to compete with the real-world version. Although Internet sales are growing rapidly, up 20 to 35 percent each of the past five years, that growth has been from a small base. Only about 5.2 percent of U.S. consumer goods are purchased online, according to Jupiter Research.

During the first nine months of 2007, online retail spending totaled $84 billion, with the biggest growth coming in video games and consumer electronics, according to ComScore.

And cybershoppers can be a fickle lot, as the history of online retail has shown. This year's standouts show that if investors are going to put money on Internet retailers, they have to understand the retailer's competitive advantage and know whether it can last.

Not every Web-retail stock has fared well.

RedEnvelope and uBid.com survived the bursting of the dotcom bubble but have dropped about 44 and 68 percent, respectively, over the past year. Neither of those businesses was the first to market in its category, and neither has been able to distinguish itself from rivals, analysts say.

"If you don't have a viable winning strategy early on and don't get the formula very quickly, you get left behind, and it's hard to make up the ground," said Jeffrey Lindsay, an analyst at Sanford. "If you don't get onto that elevator at the ground floor, it's difficult to get on further up."

Amazon, founded more than a decade ago as an online bookseller, is an example of an early company that boomed, busted and clawed its way back to profitability.