MONEY IN THE BANKS

DON YAEGER

Enticed by prospects for increased store traffic -- and hefty revenues from lease contracts -- retailers are rapidly signing on with banks to install branches in their stores.

Banks are all too happy to bypass the brick-and-mortar investment of building a new branch, and retailers have readily accepted their new role as landlord. Today, some 4,000 supermarkets feature branches and 1,000 more stores are projected to add banks in 1997, industry sources said.

Although retailers generally declined to discuss their specific lease arrangements with banks, several did indicate that $2,000 a month per store was the average lease payment they collect. Because retail space in the East and Northeast is tighter, lease payments in those regions of the country are slightly higher than in the Midwest, sources told SN.

Lease payments are one of two key benefits in-store banks deliver to the host store, said Gary Giblin, analyst at Smith Barney, New York.

"They are the greatest thing since sliced bread -- very profitable rentals from the space, plus traffic generated by the banks, makes them very attractive," he said.

Albertson's, Boise, Idaho, is among those aggressively adding in-store banks. By the end of January, 200 of the chain's 760 stores will have branches, said Michael Read, spokesman. He said lease payments are just one of several factors taken into account when signing on with a bank.

Retailers prefer not to publicly address the profit opportunities of in-store banking, but "the return on investment from the lease payments perspective is very, very high," said one retail executive, who requested anonymity.

"We like to tell the world that every square foot of space in the store is fully productive and that really isn't true," he added. Lease contracts with in-store banks "could be a way to jumpstart the ROI on that marginal square footage."

The lure of lease money, while important, is not the sole reason retailers have embraced in-store banking, however. Retailers cite other advantages such as the enhanced perception that the store offers one-stop shopping, potential for increased foot traffic and better shopper loyalty.

Measuring in-store banking's impact on the bottom line is a difficult task, retailers agree.

"It's so intangible. It can't be pinpointed," said John McKeever, president of McKeever Enterprises, Independence, Mo. Each of McKeever's four Price Chopper stores, the largest of which is 90,000 square feet, has banks.

"We know some people come to our stores for the banks and we hope they do some shopping."

Bob Dierberg, president of Dierberg's Markets, Chesterfield, Mo., said he believes the presence of banks in eight of his 16 stores has contributed to the perception that the chain offers one-stop shopping, but "there are some things in life that are difficult to measure, and this is one of them," he said.

The chain will likely add more banks in the future, he added.

Wal-Mart Stores, Bentonville, Ark., currently has 224 of its 325 supercenters equipped with banks, and another 100 locations will add them next year, said Sharon Weber, spokeswoman. She acknowledged that lease revenues are an attractive reason to feature banks, but the value of reinforcing the one-stop shopping message can not be overlooked.

Dierberg's banks tend to run on the larger side, occupying about 800 square feet, but not all branches require so much space. Typical bank branches occupy about 400 square feet, which for some smaller retailers is still too much floor space to give up.

However, with the advent of improved technology -- such as highly advanced automated teller machines, video banking and automatic loan machines -- the space needed for a bank can be reduced, which enables smaller retailers to offer the service.

"We are designing modular concepts of 50- to 250-square-foot banks which will put the independent in an equal position with his competitor," said Lawrence Crane, retired president of Piggly Wiggly Corp., Memphis, Tenn., who is now doing consulting work for a banking service company.

Less than 10% of Piggly Wiggly stores have banks, and those that do are larger stores in metropolitan areas, said Danny Barnwell, vice president at Piggly Wiggly which is part of Fleming Cos., Oklahoma City.

"With automation, banks realize that they can go as low as 175 or 200 square feet," he said.

Typical of the new automated technology is interactive video banking, which was scheduled to be installed at Albertson's this month in Tulsa, Okla. The feature is designed to free up bank employees to promote their services out in the store aisles. Using a touch screen, customers can utilize a wide range of services from mortgages to checking accounts.

Bashas' Markets, Chandler, Ariz., which is rolling out banks in all 73 stores, found space availability to be somewhat of an issue at retrofit stores, but it was not an insurmountable obstacle, said Becca Anderson, public relations director.

Modifications to the front end were sometimes necessary, and in some cases, courtesy counters were relocated and other departments, such as video, were scaled back a bit to accommodate the banks. In one case, large-size dog food was moved to a back room and retrieved for the customer upon request.

At Minyard Food Stores, Coppell, Texas, space considerations required some adjustments at a 30,000-square-foot store scheduled to receive a bank, said Mario LaForte, vice president of finance. The retrofit required cutting back on video, health and beauty care items and some magazine displays.

Bashas' Anderson said cross promotion will be an important part of Bashas' in-store banking program. Stores' public address systems, for example, will broadcast various messages such as "The third person in line gets a prize at the bank."

Such joint promotional efforts are not uncommon as banks have adopted more of a retailing attitude than in years past, said McKeever.

"Where previously they had been operated like typical banks, now they are selected for their ability to be a retail partner," he said. "We look to see if they fit in with the retail business; if they hire people with a retail mind-set."

Bank employees in his stores receive special retail training, McKeever said. He said bank personnel may assist shoppers in finding an item, and even help out at the front end bagging groceries.