Reader Question Two

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I came to credit union from the retail industry, and I was wondering if there is a formula for credit union facilities similar to the sales-per-square-foot formula we used in the retail world to determine how large of a space is needed for a given location?

Paul Siebert, EHS Design, Seattle

It is unusual in the credit union industry to find retail measurement tools being used, but they should be. Our firm uses retail measurement tools as well as typical financial, product and service and staffing ratios to evaluated branch performance and help predict branch sizes based on a variety of growth scenarios and market evolution. A few of the retail measurement tools that should be considered are:

* Households or members per square foot.

* Deposits and loans per square foot.

* Transactions per square foot.

* Staff per square foot.

* Retail space efficiency in terms of use of space for member contact versus operations. (Gets to facility cost efficiency).

* Sales effectiveness based on specifically designed surveys.

* Mystery shopper facility productivity evaluations.

* Staff productivity measurements.

* Cross-sell ratios.

* Households and members per dollar of operating cost.

Jim Caliendo, president, PWCampbell

I would not look at your space in a "formulaic" manner, per se. Designing a great member-friendly space based on your marketing goals is more about optimizing the location and design rather than imposing a "sales per square foot" restriction on what might work best. It's based on the size of the branch and what activities would need to go on in the branch. Ideally, we believe that approximately one-third of a facility's space should be allocated to create a marketing environment dedicated to enrich the experience of members. Like retailers, credit union facilities must appeal to its members in a way that gets their attention and invites them to interact and to be exposed to new programs and services.

Our experience at PWCampbell is that more branches are seeking this kind of retail focus. Naturally, the size of the branch would dictate how much retail space can be deployed. In an ideal situation, we'd like to see one-third of the space used for some type of marketing, merchandising, branding or education. This can be accomplished by:

* MSRs who are cross-selling services and assisting members.

* Utilizing back-lit signage and monitors that feature marketing messages.

* Using teller pods to replace formal teller lines.

* Messages on ATM screens in kiosk areas where members can easily be exposed to information.

Whether it's an educational message in video form or promotional message on literature racks, all of these are retail methods of providing consistent messages that appeal to members. As a way of augmenting their advertising and other forms of promotion, credit unions are moving toward the retail mindset with good merchandising and marketing inside the branch.

Bill Dean, VP-Business Administration, NewGround, Chesterfield, Mo.

Most credit unions don't have a true handle on profitability-per-product and therefore cannot determine the product mix that would optimize sales in a given branch. Further, new market qualification processes, using segmentation analyses, can provide the credit union with a more finite assessment of member lifestyles and product-use matrices that could drive branch-specific sales and marketing communications and member service concentrations, specifically strategic retail centers or boutique branches.

If we could match psychographic demand with the credit union's assessment of their member profile in various markets, then specific product offerings could be measured on a sales-per-square foot basis, using similar models that are used in the retail industry.

Today, most financial institutions do not have a defined methodology or process of calculating profit-per-product, use-per-product, or market potential-per-product, because they are looking at products-per-member, transaction counts, or volume of loans, which are not sales-related, but operations-centric.

NewGround has analyzed the branch market using theories of experience retailing concepts and has determined that a typical branch could be approximately 3,000-3,500 square feet with six to 10 FTE's, provided those employees are cross-trained in sales and relationship-building skills and are capable of working the sales floor, similar to a standard retail entity. The disconnect is teaching retailing skills and culture to a banking culture that traditionally has been operations-based and non-customer centric.

The DEI Design Team, Cincinnati

The square footage size of a facility is dependent upon the market potential and the projected capture rate the facility is expected to achieve. Based upon these anticipated activity levels, the number of employees needed to handle the growth can be determined and a preliminary square footage can be ascertained. Additional factors are then taken into consideration to arrive at the size needed, such as ancillary space in the facility (conference rooms, community room, etc.) and how the products and services will be delivered, as in a traditional or retail environment.

As a rule of thumb, we use 300 square ft. per employee when planning a new facility. This number encompasses circulation, hallways, restrooms, mechanical, etc. Of course, a branch designed with more retail may require more square footage to accommodate a large display area for vehicles or jet skis and motorcycles.

Connie Lyle and Will Klein, KDA Holdings:

Space allocation for a branch office is a function of the demand in the market to be served, the service offered and how they will be offered, and the expected transaction volume. In essence, all three are functions of the market. In the first case, the important question is "what is the potential for deposits, loans, and/or other financial services in the market?" These volumes will set the expectations for the credit union.

The second point will determine how the institution will meet the demand. Will there be a teller line or RTS units; do the MSRs need private offices, cubicles, or an open office-scape; will there be a mortgage lender or financial planner in the office? Finally, these will be put together to forecast the anticipated new account, counseling, and transaction volume which will set the number and type of employees needed to serve the market.

The number of employees, the function of each, and the space requirements that go along with the function will determine the size needs of the facility.

Ralph La Macchia, The La Machhia Group

The formula that you are speaking of is addressed in the "Urban Land Institute Directory" and also in a book called "Score," which is published by the International Council of Shopping Centers. Sales-per-square-foot ratios differ depending on the type of user, and are typically about $400 to $500 per square foot at large shopping centers that have a larger regional draw, and $250 to $300 for small strip centers.

The benchmarks that are used are fairly broad. However, there is an equation that is put together taking the mix of tenants into account. The incorrect mix of tenants or attractions in a center can be a detriment. A center that is properly designed and leased has people making multiple purchases per stop. One of the reasons that financial institutions have been going into grocery stores is to take advantage of just that convenience.

As far as credit unions go, we have developed a series of computer models that allow us to take advantage of the sales-per-square-foot formula. We've found it to be driven very specifically by the type of institution, blend of services, demographics, and targeted market. The differences vary to a large degree.

To simply throw out a number would be of no use to anyone. It really needs to be built as part of a model, taking into account all of the components that affect the formula and applying them to your CU.

To summarize, the answer to your question is yes, we do those calculations, we do have those numbers, and they do matter. While square foot sales work great in retail, it is typically used to calculate rent; it is not as simple for financials.

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