When a credit union evaluates a new market for branching, household growth is almost always the first statistic they seek as a gauge of market opportunity. This is certainly sensible, since it is easier to thrive in a market where additional households can support the added branch than in a flat growth market where a new branch just carves the existing household pool into one more slice. This belief has led bankers to branch aggressively into Florida, Texas, Arizona, and other high-growth areas.
But many markets lack the level of growth that some sun belt areas enjoy, so credit unions must be confident that they can grow their institutions in flat growth markets too. Of the over 900 metropolitan areas in the United States, 320 metros, or 35%, are expected to show household growth of less than 5% during the next five years. Where, then, can credit unions find opportunity in these markets?
Fortunately, it is not household growth by itself that creates opportunity. Rather, when new household growth is considered as indicative of opportunity, it is because the statistic impounds the number of households that will arrive in a market without a pre-established routine from their home to their nearest branch. Yet new housing construction is hardly the sole source of new household arrivals in a market. Household turnover, or purchase/leasing of existing housing stock, offers similar opportunities.
Consider as an example the Boston metropolitan area. With 4.5-million residents in 1.7 million households, it ranks among the 15 largest markets in the United States. From 2000 to 2006, its household base grew by only 4%, or an additional 77,000 households. But in that same time frame, 820,000 existing households, or nearly half the metro's household base, moved into new residences. Thus, the pool of new residents of existing homes was more than 10 times larger than the pool of new home constructors. The overwhelming majority of those existing home purchasers were not new arrivals to Boston, but rather the result of in-market migration.
Though certainly familiar with the Boston metro and likely already carrying a relationship with a Boston financial institution, residents in each of those 820,000 newly sold (or leased) households were finding new routes to work, to their children's schools, and to the local grocery store. And in many cases, the route would be to a different job, a different school, or a different grocery store.
There are several implications for credit unions in a neighborhood with high household turnover. In terms of member acquisition, CUs should pursue programs targeting newcomers. These can range from simple programs such as sponsoring activities and events at local schools (always a first stop for new families in a community) to more complex initiatives such as buying a list of recent postal change of address filings and courting the new arrivals through direct mail and calling campaigns. Since many of the new residents will be arriving from within the same metro, they may have pre-existing relationships with a marketwide institution that has branches in both their former and new neighborhoods. But even these relationships are in play, as the new branch will need to demonstrate that its service matches what the prospective member experienced in their former neighborhood.
Of course, while high turnover creates opportunity, it also carries risk. For every existing household that has a new occupant, an old occupant needed to leave. Except for those who left due to mortality, each departing household represents a possibly retainable relationship. In order to maximize retention, be sure that current customers understand the reach of your credit union's branch network and the breadth of its telephone and Internet offerings. And when members show signs of relocation, such as changing their address, applying for a mortgage, or closing a home equity line, ask questions and take the opportunity to inform them of how they can continue to use your CU in their new neighborhood.
More than 10 million American households will move in the next year. In a flat growth market, it is imperative to have a strategy to court those moving in and to retain those moving out. Even when there's no growth, there is still ample opportunity in most markets.
Steven Reider is the founder of Bancography, Birmingham, Ala. For info: www.bancography.com.
