Branch Building Spree: Hitting Saturation? Once upon a Time, the Branch Was Proclaimed as "Done For." Then, the Proclaimers Realized That Branches Were Important to the Customer. but Even Some Customers Are Beginning to Wonder-Is the Industry Engaging in Overkill?

SEEMS THAT YOU CAN'T STROLL DOWN THE BOULEVARD of a typical city--or drive through the suburbs--and not be struck by it: branches are everywhere. Competitors are facing off. Sitting pillar to ATM, they share a block or are a stone's throw away. The buildings themselves take all shapes, sizes, and design conceits, wearing multicolor skins and merchandising. In the suburbs each has its own set of well-behaved hedges and ample parking lot. It's a veritable plumage of bank real estate. Many outside the industry wonder about the branch building bonanza. Our editor-in-chief gets asked by friends, "What's the deal with all these banks?" People are either perplexed or bemused, as if the mere presence of so many branches is a signifier of some mysterious business practice nobody bothered to explain. But the industry knows what it's doing. Despite predictions to the contrary, the branch has proven itself to be a hale and hardy commercial outlet. Not only was 2003 a year when branches regained legitimacy, it launched what could be thought of as a new era in branching in which technological renewal and redesign were often factored into the strategy. The phenomenon was widely reported here and elsewhere. And, the numbers back up first impressions. According to the FDIC, bank branches have grown 12% since 1999 and deposits increased by 45% in the same period, helped by the tech stock collapse and economic fears that led to an unprecedented period of deposit collection, and by extension, bank prosperity. "Perhaps most critical to the banks' success during the past year or so, is how the Fed has supported liquidity, which led to a growth in the money supply," notes Denis Laplante, senior vice-president of research for Keefe, Bruyette & Woods, New York City. "And retail institutions got a lot of those deposits." Moreover, in the 12 months ending on June 30 of last year, the number of bank branches rose by 1,594. A look at the trend Now looks like a good time to ask, are we hitting a point of saturation? First, although it seems like a national occurrence, the experts point out that branch building has been--and remains--a very local phenomenon, with some regions within Texas and Georgia, for instance, growing like gangbusters, even as others stay underbanked. In other words, as a general question, it may not have a meaningful answer. "When the industry pundits look at the issue, they are evaluating macro statistics, which are useful as a general barometer of industry activity, but not all that useful for bankers that are planning networks," says Jon Witter, senior vice-president, general bank distribution group, Wachovia, Charlotte, N.C. "As practiced here, branch network management is a holistic activity," Witter explains. "It includes new branch building, branch refurbishment, and a systematic approach at developing the right design--all of this is done in a coordinated way so that we come up with the right size network for our objectives." "However, in terms of where a given branch is placed and how many occupy a given region," says Witter, "it's very much a market and submarket discipline, and also depends on the characteristics of a given trade area." And so, Witter is continually evaluating his network, seeing where the holes are and what makes sense for his existing and future customer base. From there the executive chooses good locations and "lets the chips fall where they may," knowing that Wachovia's disciplined approach to merchandising, sales, and marketing will all play a role in branch performance. "Bankers have gotten very sophisticated in their operations," notes Nancy Michaels, a consultant with Capital Performance Group, Washington, D.C. "They are also quite improved when it comes to picking locations. If a bank is building a branch in a location, chances are good that the performance indicators and site characteristics justify the build. …