ABA Banking Journal - January 2010 - (Page 26)
Retail report This methodology looks at existing and desirable new markets as though there were no branch locations yet in existence. Each market is evaluated and prioritized based on its ability to maximize the return from each business line (consumer banking, mortgage, small business, investment, commercial banking, private banking, wealth management). The potential performance of each product and service can then be mapped and scored. Potential income and profitability follow, with projections for each market down to the block level (approximately 400 + households). As previously stated, the level of market data today is exceptional and can enhance profitability if it is manipulated properly. But data alone is not enough. Before you place branches or alternative delivery systems in a market, you need on-the-ground intelligence. This comes from savvy commercial real estate agents, city planners, transportation officials, Chambers of Commerce, and developers. By investigating markets through these resources, you get an additional layer of information that can mean the difference between high and modest branch performance. Then you can answer key questions, such as: Which malls are prospering, and where will new malls or strip center concentrations be placed? What is the direction of new housing growth? Will new roads be added and existing traffic patterns changed? The next step in the zero-base branching process is to create the perfect branching array by positioning branches at the most productive locations in terms of business line delivery and market potential, both today and over the next five to seven years. The analysis generates an understanding of how convenience overlaps at 3 and 5 miles will enhance overall network performance. You can then determine branch sizes, staffing, delivery types, investment, and the implications of leasing versus owning for each location. Finally, you overlay the existing branch network on the perfect branching array and pinpoint needed adjustments. Then develop strategies to evolve the current array into a high-perfor26 january 2010/ABA BANKING JOURNAL mance network in five to seven years. Mix of resources needed The same analytical and on-the-ground research process should be used to understand the value or potential value of a bank acquisition. There may be greater value in a branch market than is projected by the existing branch network. A bank may be able to double market penetration by adding or relocating a few branches. Large, expensive branches that under-serve their geographic area can be sold; small branches built or leased; and customer convenience, share of wallet, and household and business penetration significantly improved. drive the right real estate decisions. Firms such as Weber Marketing Group, EHS Design, AnySite, Bancography, and Mapping Analytics can help banks analyze markets. They can recommend the most productive branch locations and offer strategies on how to increase market and network efficiency. Regional retail banking and facilities managers receive a constant barrage of recommendations for “hot” potential sites from Realtors and developers. These typically take the form of a site plan with general demographic information and aerial photos to help sell the piece of property. The same sites are generally offered to competitors as well. Banks all want to be first to claim the best site, but they do not want to be forced into reacting under pressure. If you have not already defined the location as a target, how do you know if it is viable, or how it will impact the entire branch network? Having a strategic branch plan in place prepares you for these opportunities. Network’s yearly check-up Optimized doesn’t mean spartan. North Shore Credit Union’s “Financial Spa” concept focuses on the emerging wealth and mass affluent segments, which helped it double its assets in five years with the addition of just one branch. (Yes, it’s a credit union. But in Canada they pay taxes!) Large banks have the resources to pay for in-house expertise and purchase access to expensive data sources. Small banks, on the other hand, can gain the same level of information and expertise by combining in-house staff skills with data sources and consultant resources. The cost of a full branch network optimization study can be covered by discovery and implementation of one or two improvement opportunities. Purchasing location analyses from one of the many vendors can provide very good data, but raw information alone is not enough. Real estate agents can provide market data as well, but banks should pay attention to how the data is presented. Are the market characteristics presented in a circle around a new branch location, by drive time, or by block group? Knowing the exact location of target market groups can Optimizing the performance of branch networks requires constant tuning. Retail and residential concentrations shift; market quality changes; acquisitions add branches to the network; competitors make unforeseen moves. You may add products and services. And your business focus may change. Most branch network optimization plans cover a five- to seven-year planning period. But much can happen in that time. Branch network planning and the resulting strategies should be revisited annually. This will help ensure top performance year after year, while guiding branch investments in the most productive direction. Bill Gates predicted the demise of bank branches by 2005, but that year has passed and branches are still around. In fact, many industry experts estimate there will actually be more financial institution branches in five years. Since branches are here for the foreseeable future and their cost is high, let’s generate the highest possible return by delivering a unique and highly productive customer and staff experience and savvy branch network optimization. BJ Subscribe at www.ababj.com
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