Banks and department stores share certain characteristics — they have long histories as convenient, somewhat stodgy venues to conduct business, and they are under pressure from nimble newcomers and changing customer expectations.
For a recent Fortune magazine feature, Phil Wahba visited Newport Mall in Jersey City, New Jersey where four anchors — Sears, Penney’s, Kohl’s and Macy’s carried much the same merchandise —Izod polo shirts, six-packs of Hanes underwear, Levi’s jeans.
“Blah, blah, blah,” he wrote.
What if he’d gone to four major banks?
The retail consultancy AlixPartner estimates that traditional middle-of-the-road department stores have a 40% merchandise overlap, he wrote.
That’s a lot less overlap than retail banks whose products are mostly money and rates — mortgages, auto loans, checking accounts, savings and CDs. They’d like to offer advice and charge a fee for it — how’s that working out? And in investments, can they compete with Schwab, Vanguard or Fidelity, not to mention robo advisors like Betterment, any better than department stores can compete with Amazon?
Banks and department stores were convenient place for one-stop shopping in a more serene time.
But now markets have fragmented. Both banks and department stores face internet competitors. Customers can scan multiple sources of apparel or finance in minutes on a smartphone or computer. It can be more convenient to buy a pair of jeans, obtain a mortgage or set up an investment account with on-line provider 2,000 miles away than to do business with a local retailer or bank in town.
The most obvious result is the significant number of department store and bank branch closures. Business Insider reported that Macy’s plans to close 100 stores this year and Sears was planning to shut down 30 Sears and Kmart stores by April. In February J.C. Penny announced plans to shut down 130 to 140 stores over the next few months.
Meanwhile, the scene in banking was not much different. The Wall Street Journal reported in January that U.S. banks cut a net 1,487 branch locations last year. CNN also reported in January that ”Wells Fargo announced plans on Friday to shut down more than 400 bank branches by the end of 2018. That's on top of the 84 locations it pulled the plug on in 2016.”
Agile competitors in both retail and banking are also winning with speed. Steve Denning has written about Zara:
“The company can design, produce, and deliver a new garment and put it on display in its stores worldwide in a mere 15 days.” That improves profitability because it can quickly adjust to styles, not to mention weather and it leads to fewer profit-robbing markdowns and end of season sales.
Dr. Warren H. Hausman, professor of management science and engineering at Stanford University, calls it the Zara Gap.
The fast fashion firms have designed transparency in the fashion world into their business.
“The long and guarded industry process of translating fashion design into street wear—or from elite runway shows to department store floors—is now completely transparent to sophisticated ‘fashionistas,’ young people whose purchase influence is 24/7 mobile access to stores, stars and sources that truly reflect demand- driven impulses.”
Banks face similar challenges on both transparency and speed.
Comparison sites like Credit Karma, NerdWallet and MagnifyMoney constantly update ratings on financial products like credit cards, bank accounts, investment firms, personal loans and insurance.
When millennials check their bank balances — more or less daily on their mobile phones — they are going to see when banks apply deposits and how they record withdrawals, as Chris Skinner noted in his recent book Value Web. Recording a $500 debit first, and then triggering NSF fees on a number of smaller withdrawals or check, is not going to work in the face of this scrutiny. The world has come a long way from posters in bank windows promoting their deals or credit card mailers providing the main sources of information for bank customers.
The Charles Schwab TV commercials where a young man tells his father that investing has changed, or the broker trying to close the curtains to block a Schwab ad for cheap commissions as his client asks about pricing, are just the latest evidence that transparency has spread throughout finance.
Startups are offering personal and business loans approved within minutes. Rocket Mortgage promotes mobile phone app that checks an applicants credit rating and earnings and promises a pre-approval in eight minutes or so, paper-free. In person to person payments, Venmo and Square show how agility and speed provide a competitive advantage.
Like department stores confront fast fashion, banks confront fast finance, and with a similar mix of in-house development and, more recently, partnering. OnDeck and Kabbage can do business loans in a day, or even minutes. Like department stores which have brought some high-end fashion to their own branded in-store boutiques, some banks are taking the challengers aboard, as JPMorgan has done with OnDeck and several banks, including Scotiabank, ING and Santander UK, have done with Kabbage.
