Retail Mysteries

I, too, wonder why banks seem so interested in securing so many prime retail locations: "I understand that the sense of respectability and solidity conferred by brick-and-mortar is an advantage when your whole job depends on making people trust you with all their money EVER, but aren't they taking it a little too far?"

Somewhat similarly, I feel like a ridiculously high proportion of stores in DC are selling cell phones. The implication seems to be that this is a big impulse purchase so you need to have tons of locations everywhere to capture all the customers. But in my experience, people seem to buy phones pretty rarely -- after all, everyone's locked in to these restrictive contracts.

Photo by Flickr user OmarOmar used under a Creative Commons license

Comments

Is "everyone" locked into a contract? Many less affluent people buy minutes on cards.

Posted by Bill Gardner | December 12, 2007 12:19 PM

But in my experience, people seem to buy phones pretty rarely -- after all, everyone's locked in to these restrictive contracts.

Hey man, I thought you watched The Wire. Obviously you underestimate the needs of organized crime...

Posted by McKingford | December 12, 2007 12:26 PM

Its not just the less affluent who buy minutes on cards. I do it and I'm plenty affluent. Of course, part of my affluence is due to the fact that I am a cheap bastard.

I'm surprised its not more popular for those of us who really don't use the phone much.

Posted by Spike | December 12, 2007 12:28 PM

Regarding the banks, I read somewhere that it's because non-customer ATM withdrawal fees create a decent profit stream for any bank branch with an ATM.

Disclaimer: I admit this seems implausible and I have forgotten where I read it.

Posted by James Gary | December 12, 2007 12:31 PM

I assumed it was because they were making tons of money off ATM fees. I think a lot of people prefer to get cash from a bank than a convenience store, even if it's not their bank. Also, when people need to choose a bank, they may be heavily influenced by which bank they see most often during their daily routine.

Posted by EERac | December 12, 2007 12:34 PM

The thing about the banks makes perfect sense to me. One of the services banks compete on is convenience. Knowing you can easily get your banking business done at bank X because bank X is everywhere you go will make you more likely to use bank X.

Posted by Elliot Reed | December 12, 2007 12:34 PM

I know zero about banking economics...but why do I have the feeling that sometime over the next recessionary, credit-imploding year, there is going to be a giant whooshing sound, as streetcorner bank branches shrivel up and die and turn into pizza parlors and 99c stores and such? Something about credit-card and 2nd-mortgage applications and other creative credit-economy transactons vanishing into the ether....

Posted by elle loco | December 12, 2007 12:39 PM

...and what's the deal with all those nail salons?...

Posted by J. Seinfeld | December 12, 2007 12:39 PM

cell phone stores are the new illegal activity front. lower overhead, low employee number and relatively small space required for operations make it a relatively good front. this explains how a good amount stay in business, despite as matt notes, one does not have to constantly buy a new phone or plan.

Posted by joe | December 12, 2007 12:47 PM

My retail mystery is why does it appear that every little wide place in the highway in the rural south seems to have a tanning saloon.

Does it have something to do with being a red neck?

Posted by spencer | December 12, 2007 12:52 PM

Banks are making so much money, they don't even know how to spend it.

Hence, build more branch locations! Why not?

Posted by Anderson | December 12, 2007 12:55 PM

RE: Cell phone stores -
MY, you should check in with J.Fallows about China's version of phone store overload -- There are entire blocks in most cities where almost every single store is a cell phone store. I once counted 12 stores in a row, in a small town.

I can understand the 'ice cream stand' theory of bunching like stores near each other. But this seems to be something else -- there are cell phone stores everywhere, not just in one neighborhood.

Anyway, ask Fallows --

xyz

Posted by xyz | December 12, 2007 12:58 PM

Nothing important to add. But, hey, that bank's right around the corner from me!

Posted by Kevin Walker | December 12, 2007 1:03 PM

I'm sure this is a puzzler at Microsoft interviews. There are 200 million cell phones in America. Let's say the average person needs to go get a new phone or accessory or swap out a sim card (if they don't know how) 2.5 times per year. That means on any given day, 1.3 million people go to a cell phone store. If each store has 10 customers a day on average, that means you'd have one store for every 4,000 people, or about 150 stores in DC, or four per square mile, or one per five NYC-length blocks (don't know how long a DC block is). When you consider the huge number of commuters who probably do some shopping in DC, and the pockets of the city with no retail, you'd end up with areas that have even more stores.

Also, places that sell consumables (grocery stores, convenience stores) like cell phones because they have a long shelf life and thus don't have to be thrown away if they go bad.

Posted by Nicholas Beaudrot | December 12, 2007 1:03 PM

Banks' decisions as to where to put brick-and-mortar locations are influenced to some extent by the Community Reinvestment Act ("CRA"), which requires federally insured banks to be evaluated based on whether they are serving the needs of their entire community (i.e., do poor people have access to banking?).

Not surprisingly, banks try to game the CRA a bit by doing things like putting their low-income neighborhood branches in areas that are gentrifying. The upshot of that is if you are in a gentrifying area, you might well wonder why every single bank feels the need to put a branch on your block.

Posted by alkali | December 12, 2007 1:07 PM

I travel frequently in Latin American countries, and have noticed that the street vendors seem to have a huge surplus of cell phone accessories. I remember one particular car trip through the Dominican Republic in which we were approached on practically every street corner by small mobs of vendors carrying armloads of cell phone car chargers. I never saw a single one being sold.

Posted by Virginia | December 12, 2007 1:10 PM

Considering the overlap of bank hours with normal work hours, I think it's reasonable to assume that not having a branch of your bank close at hand could be very inconvenient for some people to the point where they'd switch.

Posted by aleks | December 12, 2007 1:23 PM

I used to bank with my dad's credit union, which has like 6 locations in Southern California. Getting to a branch was always a major chore (especially considering they weren't open past 5:30), and I always had to guess where there would be other credit union locations so that I could use ATMs for free. Now I'm with a major bank that has locations all over (at least in California), and it is MUCH easier.

Posted by Adam Villani | December 12, 2007 1:32 PM

"But in my experience, people seem to buy phones pretty rarely"

Clearly, Matt is not dumping burners every two weeks to stay one step ahead of Lester and Prez, otherwise he'd be happy about the proliferation of cell phone markets.

Is Season 5 here yet????

Posted by Frank | December 12, 2007 1:37 PM

Two words: Commerce Bank.

Commerce Bank was founded by a guy from the fast food industry who believed that longer hours, better customer service, and attractive branches in prominent (read: corner) locations would take deposite share from larger institutions.

This plan worked fabulously and set off a race for real estate, particularly notable in NYC where banks sit on 3/4 corner locations in some intersections. Whether copying the Commerce strategy will help deposit growth at larger banks is yet to be seen, but it has certainly helped drive up the price of prime real estate in Manhattan.

Posted by mrbubbs | December 12, 2007 1:38 PM

You young whippersnappers don't remember when banks had real BUILDINGS. Big, solid, stone and steel temples of commerce that reeked of solidity, safety, and prudence. After all these years, I still don't feel that going into a rented retail space that could just as easily be a Starbucks counts as "banking."

Posted by CJColucci | December 12, 2007 1:43 PM

Eerac basically has it right. There are two main factors here:

1) Competition. A huge factor in choosing a bank for most consumers is ATM convenience, which leads to endless competition between banks to have the most (and most prominent) locations. The prime real estate is so people realize they have lots of ATMs.

2) Fees. Having the most convenient and prominently located ATMs around also mean people from other banks will stop by out of necessity and pay your wicked high fees. Extremely profitable.

As for cell phones, I have no idea.

Posted by right | December 12, 2007 1:49 PM

I moved to a new state and still bank at the old state's employees' credit union, despite having no branches here. The commercial banks can blow me.

Posted by dob | December 12, 2007 2:08 PM

The commercial banks can blow me.

Gag here about "a substantial penalty for early withdrawal."

Posted by James Gary | December 12, 2007 2:19 PM

People get loans from their local bank. More branches = more loans. Loans are assets, while deposits are liabilities. More loans, more money.

Yeah, and the ATM fees probably help, too.

Posted by alli | December 12, 2007 2:41 PM

Nicholas Beaudrot -- good job, you "aced the case". I would question your assumption of 10 customers/store/day, however. How is that enough business to justify keeping the store open? Also, just looking at actual traffic in stores, it's more like 10 people every time I take a peek, not 10 people per day.

Posted by nbt | December 12, 2007 2:47 PM

On Commerce Bank: I know they have a reputation for good service but in my experience they suck shit. I tried to open an account and they wouldn't let me because I'd moved (that's why I needed to open a new account!) and didn't have things like a drivers license or utility bills w/ my new (as in two day old) address yet. And, they said it would take more than a week for my checks to clear for one month, including the certified check from my old bank. And they always have a huge line. They blamed the crazy address requirement on september 11th, which made me sure I wouldn't do business with them. I walked down the street to Chase and everything was fine.

Posted by Matt (not the famous one) | December 12, 2007 3:35 PM

Frank beat me to it. Well played, sir.

Posted by Nordy | December 12, 2007 3:35 PM

I wonder how many of these banks had some role in the purchase of the real estate in which the bank branch is located.

If the bank itself owns the building or strip mall, perhaps they get some kind of tax benefit by being 'resident' owners.

If the bank finances the purchase or construction of the building, perhaps they cut a deal with the owner that gives the bank space for a branch in exchange for a lower interest rate.

It's obvious that they aren't setting up these branches for the customers' sake. Banks don't do that.

Posted by Jon H | December 12, 2007 7:00 PM

I asked this exact question once to a friend who works in real estate, and he told me it was essentially marketing: The buildings serve as billboards, but they also manage to throw off some cash in the form of ATM fees. (He said there was a similar calculus behind Hershey's decision to open their store near Times Square).

Posted by Zorro for the Common Good | December 13, 2007 9:24 PM