The poor economy is forcing many banks and credit unions to consider downsizing their branch networks. And if downsizing is done correctly, it could be a godsend to the institution.
A number of savvy credit unions are turning the down economy into an opportunity and using it as an impetus to assess the efficiency, productivity and ROI of their branch networks and make changes that will increase target growth, share-of-wallet and profitability. No longer is it sufficient to understand the value of adding one new branch here or there, merging for scale or making an acquisition in this or that market. We need to understand how to build solid branch network foundations so we can thrive rather than just survive in the future.
At issue is not the lack of data. Most credit unions have converted to branch level accounting and can analyze financial performance down to the product and member level. Market analysis provides geocoded financial data for a wide range of products down to the block level for today and in five years. What is often lacking is the ability or willingness to analyze a credit union's entire branch network.
My concern is that many of these institutions will be building their networks on soft foundations. Before a credit union acquires branches from others or adds de novos, it should first understand the current and potential performance of its existing branch network and how to make decisions that will constantly move it toward market efficiency and productivity perfection.
Is perfection attainable? Not realistically, as markets continually evolve in terms of competitors, mergers, retail draws, convenience corridors and traffic patterns. But, if a credit union regularly analyzes its markets and makes timely and rational retail delivery decisions, it can remain near maximum potential performance. One of the keys to maintaining this level of performance is to use a zero-base planning technique in which you look at an existing market without locating your branches, lay out the perfect array of branches to maximize target market penetration and schedule and then make all branching decisions based on the plan.
The cost to conduct this research is very low compared to the potential return. For instance, last year we were working with an institution that was pursuing target growth across an entire state. It had constructed a $3.5 million branch that was not growing. The branch looked beautiful, but after detailed market analysis it was found to be in the wrong location. After realizing the mistake and some agonizing over the high cost, the institution sold the branch and relocated to two leased facilities in the right locations and started to grow. Proper market analysis would have saved this institution a great deal of money, embarrassment and frustration.
Individual branch efficiency remains an issue for many credit unions as well. A 3,500-square-foot freestanding branch costs between $2.2 million and $3.5 million, depending on location. A 2,500-square-foot leased facility typically ranges between $550,000 and $950,000, and an in-store branch between $250,000 and $450,000. Many new branches are still oversize for their current and potential markets and do not consider member convenience realties in terms of driving target growth or deliver a unique member experience.
A new and attractive branch that members and staff say looks wonderful can certainly increase satisfaction scores. It is relatively easy to create an attractive branch, but pretty is not enough. It costs the same amount of money to produce a branch that delivers a strong brand image and experience, increases products and services awareness, increases share-of-wallet, accelerates growth, and enhances member advocacy scores and ROI as it does a branch that is just attractive.
Completion of a new branch concept is often seen as a task with singular benefit: increased branch business at the branch. But, credit unions and banks that have the greatest success in branch branding understand that this is only one step. To realize the full potential of a new brand experience a credit union must extend the experience into all delivery and communication channels, This work produces much more than the sum of individual activities. It changes the culture and helps ensure the brand experience is telling the truth and is sustainable.
Creating and maintaining a highly productive branch network requires many things: the right products and services delivered to the right markets, competitive pricing, efficient market positioning, efficient branch operations, effective marketing, knowledgeable employees, convenience and a powerful and productive branch experience for members and staff. Branch network optimization plays a big role in maximizing credit unions' ROI. Developing a plan today, even in this economy, will establish a solid foundation upon which to build your credit union's future and maybe even give you the Midas touch.
Paul Seibert is vice president of financial services at design/build firm EHS Design. He can be reached at 206-223-4999 or firstname.lastname@example.org