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U.S. online holiday retail sales will reach over $39 billion in 2007, an increase of 20 percent over last year's holiday season, according to a JupiterResearch report "U.S. Online Retail Holiday Forecast, 2007."

A record 126 million users, a 6 percent increase over last year, will make online purchases this holiday season. Retailers will increase their efforts to grab customers attention using a number of tactics with an emphasis on search marketing.

"Over half of online retailers say they will increase efforts with search engines, despite rising costs and some reports of declining ROI. Shoppers can also expect to take advantage of more free shipping offers this year," said Patti Freeman Evans, JupiterResearch Senior Analyst and lead author of the report.

"This enticement will also translate to online retailers with brick-and-mortar stores who will likely to beef up their use of percent-off discounts."

Heavy use of percent-off discounts is expected from computer and consumer electronic sellers. The report points out that only using percent off discounts may not be enough to drive consumer traffic, specifically among those that do not usually shop online during the rest of the year.

"Online retailers have an opportunity to gain market this year because of the resilience of online shoppers, in spite of a relatively soft off-line holiday season," said David Schatsky, President of JupiterResearch. "Aggressive use of cross channel messaging and promotions will be key to capturing undecided customers."