May 20, 2008
Bank Branches Reel in Expansion
By Tom Ryan
For the past few years, banks in brand-building mode have been pushing rents in New York City (and other urban/suburban areas) to steep levels as they competed against one another in key neighborhoods. But brokers now say the shakeout from consolidation in the banking sector and the financial industry’s current woes could spell branch closings throughout the city in the next few years.
The end of the banking industry’s hectic expansion pace should open some prime retail real estate in New York City for other retailers too. According to The Real Deal, at the height of the bank expansion 18 months ago, a corner spot could yield landlords twice the normal asking rent.
Observers say the subprime mortgage crisis has led to more cautious expansion in the banking sector overall. Consolidation — e.g., Capital One’s acquisition of North Fork and Chase’s purchase of Bank of New York — is also likely to lead banks to close cannibalistic branches. Finally, Bill Melville, senior managing director of Lansco Corp, said many banks are facing the “law of diminishing returns,” since many banks have fairly saturated the market.
According to The Real Deal, this branch pullback has already opened up opportunities for other retail formats to secure coveted corner spots the banks had been grabbing. For instance, the southern end of Soho has recently added a number of hot new fashion and home stores, including Madewell (J. Crew’s spin-off), CB2 (Crate & Barrel’s sub-brand) and Japanese lifestyle home chain Muji. International retailers such as Zara, Reiss and Uniqlo are also said to be on the hunt for high-profile locations.
In midtown, chains such as Staples and Kinko’s catering to the office market could find more reasonably-priced spots, said Andrew Mandell of Ripco Real Estate.
In the next six to 12 months, “there will be a fairly significant change in the retail world,” said Mr. Mandell.
Discussion Question: What do you think of the banking industry’s use of retail as a core branding tool over the last several years? Was it a smart or excessive move? Secondly, how might the slowdown of bank branch openings reshape the retailing landscape in key urban areas?
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The banks need to concentrate on expanding in the outer boroughs. That’s where the large majority of their customers here in NYC live anyway!
What we have witnessed with retail banking these past several years has been both smart and, unfortunately, excessive. Washington Mutual led the way and created a new standard for banks to truly view their branches as retail and profit centers. Brand growth, consolidation and mergers have all resulted in retail banking saturation in many markets, and so we are now starting to see signs of strategic “editing” in the number and location of branch sites, especially in urban areas. This will indeed bode well for non-banking brands seeking space in these areas–especially coveted corner locations.
I’m not your usual contributor here. I’m a senior citizen on a small fixed income and believe me, from down here, just about everything my bank does is excessive from stupid mistakes in bookkeeping to the number of ways they’ve found to charge you from $35 to $105 every time you overdraw by 98 cents.
There is no doubt in my mind that the big banks, especially those making up the BIG one, the Federal Reserve, have not only made the major contribution to the latest mess in which we find ourselves but that they did so deliberately, knowing that there would be several years of short term profits and that when the “bubble(s) finally burst(s), the government will simply borrow money (from THEM) at interest, and give it to them as a bailout.
If someone doesn’t get a handle on these modern day robber barons, there’s not going to be anything left for anyone else and that includes the retail industry.
Get out of our bank and use the ATM!
No, wait a minute, come back in and buy some other de-regulated goodies!
No, go online and use us!
No, come back in! We’ll put one on every block for you!
The above scenario describes what banks have been telling their core customers for the past 15 years: a convoluted, mixed message at best. Can you even imagine a retailer doing that and still being open?
However, at this phase of their evolution, that’s exactly what banks need to do–realize that they ARE retailers and that their customers very much want a consistently positive, multi-faceted experience. In order to do that, they’re going to have study what’s being done at retail; life-style centers, mixed use retail, integration of online services, integration of food retailers, excellent customer service and more. Perhaps, when this is accomplished, they will set on the road of “less is more,” with fewer, better ‘stores’.
Banks are like any other business: they expand when business is good and contract when they lose money. The home mortgage boom helped raise banking profits, so building branches was easy. The home mortgage bust will promote branch closings. The complicating factor: banks get capital from their customers, so a branch making few loans might be needed to sustain a branch doing the opposite. Because of regulatory requirements, every bank knows exactly what the deposits are in every other bank’s locations, location by location. So it’s easy for banks to determine where to locate new branches.
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The banks need to concentrate on expanding in the outer boroughs. That’s where the large majority of their customers here in NYC live anyway!
What we have witnessed with retail banking these past several years has been both smart and, unfortunately, excessive. Washington Mutual led the way and created a new standard for banks to truly view their branches as retail and profit centers. Brand growth, consolidation and mergers have all resulted in retail banking saturation in many markets, and so we are now starting to see signs of strategic “editing” in the number and location of branch sites, especially in urban areas. This will indeed bode well for non-banking brands seeking space in these areas–especially coveted corner locations.
I’m not your usual contributor here. I’m a senior citizen on a small fixed income and believe me, from down here, just about everything my bank does is excessive from stupid mistakes in bookkeeping to the number of ways they’ve found to charge you from $35 to $105 every time you overdraw by 98 cents.
There is no doubt in my mind that the big banks, especially those making up the BIG one, the Federal Reserve, have not only made the major contribution to the latest mess in which we find ourselves but that they did so deliberately, knowing that there would be several years of short term profits and that when the “bubble(s) finally burst(s), the government will simply borrow money (from THEM) at interest, and give it to them as a bailout.
If someone doesn’t get a handle on these modern day robber barons, there’s not going to be anything left for anyone else and that includes the retail industry.
Get out of our bank and use the ATM!
No, wait a minute, come back in and buy some other de-regulated goodies!
No, go online and use us!
No, come back in! We’ll put one on every block for you!
The above scenario describes what banks have been telling their core customers for the past 15 years: a convoluted, mixed message at best. Can you even imagine a retailer doing that and still being open?
However, at this phase of their evolution, that’s exactly what banks need to do–realize that they ARE retailers and that their customers very much want a consistently positive, multi-faceted experience. In order to do that, they’re going to have study what’s being done at retail; life-style centers, mixed use retail, integration of online services, integration of food retailers, excellent customer service and more. Perhaps, when this is accomplished, they will set on the road of “less is more,” with fewer, better ‘stores’.
Banks are like any other business: they expand when business is good and contract when they lose money. The home mortgage boom helped raise banking profits, so building branches was easy. The home mortgage bust will promote branch closings. The complicating factor: banks get capital from their customers, so a branch making few loans might be needed to sustain a branch doing the opposite. Because of regulatory requirements, every bank knows exactly what the deposits are in every other bank’s locations, location by location. So it’s easy for banks to determine where to locate new branches.