Online sales excluding travel are expected to hit $204 billion in 2008, an increase of 17% over last year, according to a report released by trade group Shop.org.

The top three categories will be apparel at $26.6 billion, computers at $23.9 billion and autos at $19.3 billion, according to The State of Retailing 2008 Marketing Report.

Online commerce is expected to account for 7% of all retail sales in 2008, and will top $300 billion in five years, the report said.

In other findings, Shop.org said 53% of online retailers’ marketing budgets are spent on customer acquisition compared to 21% spent on retention.

Not surprisingly, the top customer acquisition tactic for online retailers is paid search, which accounts for 35% of new customers on average, according to Shop.org.

Organic Web traffic is the second highest source for new customers, accounting for an average of 18% of them, according to Shop.org. Affiliate programs and e-mail were tied for third place, accounting for 7% each, according to the study.

However, though paid search is the top acquisition tool, e-mail to house files is the top online marketing tactic as 92% of online retailers said they use it and 93% said it will be an increased priority in 2008, the report said.

Paid search came in at a close No. 2, though, with 90% saying they use it and 79% saying it will be an increased priority this year, according to Shop.org.

Online retailers are also apparently partial to direct mail.

“For metrics-obsessed marketers who are comfortable assessing value to each dollar of marketing spend, it’s not surprising that direct mail (versus television or other forms of broadcast marketing) is the preferred method of online marketers for connecting with core customer segments,” the study said.

Nearly half of online retailers said they send print catalogs and 46% said they plan to make them an increased priority in 2008, the study said.

The most popular promotional tactic among online retailers is free shipping with conditions, with 85% saying they use it, the study said. The second most popular online promotional tactic is percent-off promotions with 82% saying they use it. No. 3 is dollar-off promotions at 69%. Gift with purchase and online only sales are Nos. 4 and 5 at 68% and 67% respectively.

The survey was conducted in February and March by Forrester Research. Shop.org said it received 125 complete and partial responses across a variety of industries. Thirty seven of the respondents had been operating online for nine or more years, 24 said their online sales were more than $100 million a year, and 50 said the Internet was the primary channel of interaction with customers, according to Shop.org.