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TECHNOLOGY 148 • SHOPPING CENTER BUSINESS • December 2016 O ne of the most poorly under- stood aspects of today's retail environment is the influence and impact of technology on retail and retail sales. Consumer behavior and retail tech- nology are both changing at the speed of light — causing confusion at all levels of the industry, at least in part as a result of misinformation coming from the news media that covers it. Recognizing the differences between the perceived impact of technology and the actual impact of technology is a fun- damental requirement for all retailers, shopping center owners and investors alike. This is particularly true for retailers who are bombarded with input and want to make smart, strategic and informed de- cisions — both to remain competitive and to enhance customer experiences. PERCEPTION When surveyed, most Americans think they know who holds the vast majority of the Federal Government's nearly $19 trillion debt. Respondents confidently as- sert that China holds anywhere from 30 to 80 percent of the debt, while in reali- ty China holds a relatively small share of the debt at around 7.9 percent. So, what does this have to do with retail and retail technology? A similar combination of misunder- standing and misinformation characteriz- es the average person's understanding of online and mobile retail sales — a topic that has been discussed and heavily mis- reported for more than a decade, based upon the popular notion that all of the changes in retail that we have been seeing are occurring because of the giant internet elephant in the room. Despite the inflated perception by consumers, industry practitioners and the media, after more than 25 years since the first shipment was made by Amazon, the U.S. Census Bureau estimates that internet sales today account for just 7.9 percent — a level of misunderstanding on par with China's U.S. debt holdings. How can perception be so far from reality? Amazon, the internet's 500-pound re- tail sales gorilla, accounts for less than two percent (approximately $80 billion) of the roughly $4.4 trillion annual U.S. retail sales market, while Walmart alone (with around $500 billion in annual sales) accounts for over 12 percent. Target and The Home Depot are both around the size of Amazon, and Costco accounts for well over $100 million in annual sales. These companies are extremely profitable and operate on vastly simpler distribution models than Amazon. When presented with these facts, the usual reactions range from disbelief to assertions that the numbers are simply wrong, thus revealing the uncomfortable reality of how often reported narratives — whether based in fact or fiction — shape our perceptions and misperceptions. After over 25 years in business, Amazon still makes virtually no profit in its core retail sales business due to heavy logistics and shipping costs. Investors and analysts explain this like the old Saturday Night Live "Change Bank" business model, ac- cepting that Amazon will make up for the flaws in its distribution model by doing more and more volume. But, alas, just like at the Change Bank, more volume in an unprofitable pursuit just leads to more losses (Amazon is generating large profits in its web services division). Macy's, on the other hand, blames years of sales declines on the internet's outsized share of apparel sales, now ap- proaching 30 percent. A closer look at the industry reveals that department stores have been losing market share since the early 1980s as entire categories migrated from large, inefficient department store boxes to more efficient (and discount) big boxes. Today, despite the large amount of apparel sales taking place online, T.J. Maxx, Mar- shalls, Ross Dress for Less and Nord- strom Rack together are adding over 300 stores annually with only modest internet sales support. The reality is that for all the dire warn- ings and bold predictions about how online and mobile sales would be the be- ginning of the end for brick-and-mortar retail, online sales have yet to kill a single retail company. Failure to innovate, exper- iment and stay relevant kills retail chains. Of course, technology has had an impact in other ways: new products and tech in- novations have eliminated or significantly impacted a few categories, such as video stores, bookstores and music stores, where a physical product is simply no longer necessary to convey the product. That is where technology's impact on re- tail store closures begins and ends. REALITY: EMPOWERING CONSUMERS Not only is the perception that technol- ogy is going to kill brick-and-mortar false, but it is in reality almost entirely upside down. While the popular narrative has been that internet sales rob brick-and- mortar stores of sales, more evidence seems to suggest that the internet and technology in general have actually em- powered buyers to become more savvy consumers, resulting instead in increasing overall (and brick-and-mortar) retail sales. In what is by far the largest impact of technology on the retail industry, consum- ers now have the power to competitively Tech Knowledge Versus Technology Perception and reality in the way tech is impacting retailers. Nick A. Egelanian Nick Egelanian, President, SiteWorks