In a challenging year for retailers, many have been shopping for different banks. Last year, 80 percent of retailers ended an existing bank relationship, usually to trim costs, according to a new survey by the Association for Financial Professionals (AFP). Meanwhile, 90 percent of retailers added a new banking relationship, either to obtain better pricing (53 percent), to diversify risk (29 percent) or to secure access to credit (24 percent).
The 2011 AFP Retail Industry Survey, underwritten by Fifth Third Bank and released today at the AFP Retail Roundtable, analyzes responses from finance departments of 111 retailers – an industry that has experienced significant volatility. In fact, nearly 30 percent of respondents said they had altered bank relationships in the last 18 months due to major changes in their retail businesses, whether from contraction (exiting markets/ store closings) or expansion (new markets/ store openings). Significantly, among retailers adding new banks for this reason, 40 percent seek banks to handle business expansion overseas.
“The previous few years have seen a make-or-break time for many businesses,” said Jeff Ficke, senior vice president and Director of Treasury Management for Fifth Third Bank. “Those who prospered during this economic downturn are taking their companies to the next level and are looking for established banks that can help them assimilate into a global economy.”
In support of this dynamic industry, many banks are adding core retail banking services, according to 43 percent of respondents; other banks are dropping some of these services, say 13 percent of respondents. At the same time, banks are pressuring retailers to buy more than core retail services, according to 54 percent of respondents –– and nearly 30 percent of retailers surveyed say that they are indeed expanding relationships with the banks that request this increase.
Looking ahead, AFP expects to see retailers continue to alter their mix of banks because more than 90 percent of retail bank fees link to merchant card or cash management services that may be affected by new regulations for financial institutions. These include changes in interchange rates, interest on demand deposits, and FDIC insurance limits. Of respondents, 77 percent believe these regulatory changes might have an impact on bank relationships.
“Regulatory change and economic uncertainty are likely to continue to affect retailers in the foreseeable future,” said Thomas Hunt, AFP’s director of treasury services. “Effective partnerships between corporate treasurers and their bankers will help retailers weather these changes.”
As with any relationship, those between retailers and their banks often are based upon closeness and value. The survey found that a bank's proximity to store locations was the single biggest factor in a retailer's bank choice (29 percent of respondents), followed by cost/value of services (28 percent), and the bank’s willingness to provide credit to the retailer (27 percent).
Of the many challenges that can complicate the management of bank relationships, the biggest for retailers may come down to a difference in philosophy: 37 percent of respondents see difficulty maintaining a long-term view of the relationship when their bank partners are short-term focused.
“Retailers are looking for banks to be more than just a vendor of products,” said Ficke. “The more banks are able to provide a holistic, consultative approach to retailers with solutions to meet the challenges they are facing, the more likely the retailer is to stay with them. As long as retailers feel banks are treating them like a number instead of a stakeholder, we will continue to see the movement from bank-to-bank.”
Read the full survey: www.afponline.org/retailsurvey
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