Site Selection: “The devil is in the details”

In a recent Retail Delivery Insights newsletter from BAI, Gary D. Stein stressed the importance of attention to details in selecting sites for new branch locations. Not a surprise, but important nonetheless.

“Stein recommended that banks conduct a thorough analysis of the specific site and surrounding trade area. He advised banks to consider market potential, population demographics, financial product usage and demand, population density and the competitive landscape.”

And while these elements certainly go above and beyond simply relying on intuition, I’d also add the importance of psychographic data and an in-person assessment of the proposed site location to the list. Drilling down to this level of detail is necessary in today’s increasingly competitive landscape – especially as institutions adopt more specific target markets and the average new branch is likely to require a multi-million dollar investment.

An article from July 5th’s Chicago Tribune discusses the approach that allowed Starbucks to identify successful locations: “In evaluating locations, Starbucks looked past commonly used community demographic information to analyze nitty-gritty specifics, like the education level in various neighborhoods. It also studied traffic flow on both sides of the street, to make sure drives could make an easy right turn for their java fix on their way to the office.”

The commonly used community demographic information is a good starting point, but doesn’t provide the specifics relative to consumer behaviors, access or local draw which could dramatically impact the success of a new branch location. Starbucks strayed from the more scientific and detail-focused approach in recent years - which resulted in its recently announced decision to close underperforming locations.

Stein echos a point we've heard before: "branch placement may accounting for as much as 65% of its success." With so much hinging on location, you'd think the same attention to detail would be a part of any institution’s expansion efforts.

How will Starbucks closures impact shared-space bank branches?

It seemed like a no-brainer for some institutions’ expansion strategies: build branches near or adjacent to a Starbucks store; or better yet, take full advantage of the foot traffic generated by the coffee chain and share a retail space. Given the rapid growth and much-discussed success of Starbucks in recent years, it certainly seemed like a viable strategy.

But as news comes today of Starbucks’ plans to close more than 600 stores over the next year, how will financial institutions sharing space with Starbucks stores be impacted?

While most of the planned Starbucks closures will be those stores opened since 2005, it doesn't sound like the institutions referenced in this Wall Street Journal article from 2005 will be impacted. But what about those institutions that may have followed their lead and teamed up with Starbucks with a shared-space since then? Or, what about those that were influenced in some respect by a Starbucks location when selecting a site for a new branch during the past few years? We've talked to quite a few institutions, especially those with branches near college campuses, who have aggressively pursued such partnerships with Starbucks.

It's easy to see how the shifts in traffic patterns can certainly benefit many businesses, especially those that follow retail magnets like Starbucks or Wal-Mart, but what happens when they close their doors? I suppose we’ll find out which institutions, if any, will be impacted when Starbucks makes its announcement to its employees later this month about which locations will be closed.