Like holiday shoppers in need of fresh ideas, banks once again are looking at retail stores for inspiration.
This time the goal is not to learn how retailers sell, a quest that had led banks — back in the days when they were singularly focused on pushing products — to hire consumer goods executives for their selling skills and to bring in high-end retail design firms to revamp branches. Given the new regulatory environment and its impact on profitability, banks are more interested in the all-important customer relationship than in selling for selling's sake.
But just like bankers' last go-around with retail envy, when eventually they realized that the shortage of opportunities for repeat business and impulse purchases in banking made traditional retail models a poor proxy for their own, there are pitfalls to drawing too many parallels.
The old 80-20 rule of classic retailing says that merchants generally can expect 80% of their revenue to be generated by 20% of their customers. Timothy Spence, a banking consultant with Oliver Wyman, said banks certainly would relate to the idea of having a small subset of clients account for a big chunk of revenue.
But their experience departs dramatically from the unwritten portion of the rule, which implies that the other 80% of customers still add incrementally to the bottom line.
"In banking, in the context of recent regulatory events, you conservatively can say that one in three new demand deposit account sales will be unprofitable on an all-in basis," Spence said.
The corollary to retail's 80-20 rule is perhaps a 15-180 rule, in which 15% of core banking relationships generate 180% of profits, offsetting the money lost on other customers.
If banks are going to take cues from the broader retailing industry, Spence said, "it has to be in the context of those core truths."
Citigroup Inc. arguably had those truths in mind when it designed a new flagship location in New York.
The gleaming, technology-outfitted branch does away with paper pamphlets about the bank's products, offering customers a chance to research their options instead on touch-screen monitors. There is only one such monitor on the wall near the main sitting area at the branch's entrance, which means that only one customer at any given time can go to the station to learn about the offering of accounts and loans.
This implies that Citi either vastly underestimated the foot traffic destined for this well-traveled corner of Manhattan's busy Union Square, or that it wisely refrained from overinvesting in something with little hope for generating big returns.
If the latter is the case, Citi still gains the cachet that giant touch-screen monitors can confer on a brand these days.
Sure enough the construction of the new branch, which has an open feel, accessible teller desks and ropeless queues, involved the same design firm that gave Apple Inc.'s stores their distinctive feel.
But interestingly, in an interview at the branch's grand opening this month, Brad Dinsmore, head of U.S. retail banking for Citi, didn't even mention branch design when he thought over the question of whether it makes sense for banks to model themselves after retailers.
"I think there are aspects of retailing that are appropriate for banks" to examine, he said, giving specific mention to the new systems that retailers use to optimize the scheduling of workers, so that the staff can cover peak hours and not waste time during slower periods.
"But it is different" at banks versus other retailers, Dinsmore said, "because we don't have tangible products."
First Tennessee Bank, a subsidiary of First Horizon National Corp., came to the same conclusion when it examined Internet retailing as a possible model for its own website.
"We actually were going to put in an e-commerce engine," Chief Marketing Officer Dan Marks said at an American Banker marketing conference in Orlando, Fla., last month. "And then we realized, 'Wait a minute. This thing is good for managing thousands of SKUs, and we don't have thousands of SKUs," the stock-keeping unit codes by which retailers track their items for sale.
Even in the electronic space, customers' needs often have more to do with services than transactions. They want to change an address on an account, transfer funds, check a balance or research interest rates.
And in branches, the service demands are getting even stronger as online and mobile banking options move more and more transactions away from the branch setting.
To that end, retailers still have something to teach banks — so long as banks study the right retailers.
Amazon.com Inc., for example, has keyed in on tools that help breed customer loyalty. Apple has gone beyond the significant power of its product design with new stores that have redefined the shopping experience. Nordstrom Inc. has managed to win over shoppers not just across geographies, but across generations.
As Spence argued, the fashion tastemakers at high-end department stores and the fix-it staff stationed behind the "genius bar" at Apple's stores are selling service at least as much as product.
But that level of service can be difficult for banks, especially the sizable ones, to replicate. Instead, Spence said, banks might prefer to look for answers to their customer relationship questions in the world of big-box retailing, where stores are focused more on efficiency and convenience — not just when it comes to location, look or transactions, but when it comes to service.
"They spend little to nothing on high-quality advice, but the experience is consistent and expected," Spence said. "So you can manage for consistency and process excellence," when the more aspirational goals of Neiman Marcus-like service don't apply.
Honing the efficiency of branch networks may force more banks to adopt the well-honed systems that major retailers have for identifying target customers and choosing locations.
That's a trend that Buxton, a customer analytics and site selection firm in Fort Worth, Texas, is betting on as it tries to add financial services companies to its retailer- and health care-heavy roster of clients.
Before the financial crisis, when banks were expanding like wildfire, "it almost looked like they were just trying to grab land," said Charles Wetzel, Buxton's president and chief executive.
Now, between the impact of new regulations and the continued migration of customers to electronic channels, the branding value of branches looks different, requiring a more discriminating approach, Wetzel said.
But if Wetzel wishes banks would think more like retailers in that regard, there's at least one key difference between banking and retailing that he doesn't mind at all, and hopes to soon use to his firm's advantage.
Whereas retailers are hyperfocused on developing individual strengths — think Target Corp., which instead of trying to compete with Wal-Mart Stores Inc. on price instead uses its advertising to play up its style quotient — banks tend to have a pack mentality, whether they are chasing a new technology like ATM check scanning or rethinking their branching strategies.
"Unlike retailing," Wetzel said, "once one bank does it, they all will."