Lessons From The Retail World

Traditional retailers and credit unions are not necessarily on the same side of the digital divide when it comes to moving the model online.

Traditional retailers and credit unions are not necessarily on the same side of the digital divide when it comes to moving the model online.

A news item I saw the other day on Business Insider got me thinking about what when it comes to credit unions in the new world of retail do we really want to be?

Sustainable, successful financial cooperatives that exist to serve the members best interests, of course. But there’s also this argument that we need to think more like retailers, accommodating today’s ultra-demanding consumer with an advancing lineup of products and services at all times through all channels.

There’s also the assumption that we want to move as much business as possible online, because it’s cheaper than the teller line and the loan officer in person.

Wanting to be like Mike or maybe like Amazon prompts some to point to major retailers as the model for how physical goes virtual. But that’s not necessarily so. While traditional credit unions as an industry continue to pump out great numbers working both sides of the digital divide, many traditional retailers haven’t found the same nirvana.

Here’s one big reason why. Unfortunately today, e-commerce generates a lower operating profit for us than four-wall brick-and-mortar, John Idol, CEO of national clothing and accessories retailer Michael Kors, said last week during his company’s quarterly earnings call.

We think over time that will reverse itself, but, as you know, when the consumer requires free delivery, free return, wonderful packaging, plus there’s a new trend that people are buying multiple sizes of things to try them out at home and then return them, that all is a negative headwind for us, Kors said.

Break Down The Barriers

There are lots of good reasons to shift some of our focus from being experts of retail delivery to being a sort of Internet and mobile sales industry, to thinking about how to best distribute our services digitally. Most obvious is that we have to be where our members are.

But we also know branches aren’t going away, that people of all ages still use them. And unlike the phenomenon of shoppers visiting the store and then ordering online, where the member engages the credit union shouldn’t matter as much as our ability to serve their financial needs.

There are, of course, still some similarities between retail banking and retail merchandising. Razor-thin margins, for one thing. And demanding, impatient consumers. (There already are reports now of consumers aggravated by having to wait as much as 10 seconds for an EMV reader to do its thing. Check out the third paragraph in this report: EMV Processing Could Slow Down Holiday Shoppers. These respondents preferred speed over security.)

But we’re not just like retail. Our products are bits and bytes, not clothes in a box. And ifyour credit union is looking to be more of an Internet retailer, maybe you need to think about whether you’re really ready to make the pivot. Maybe we do as an industry for that matter.

Maybe it comes down to thinking about barriers. That’s the genius of Amazon Prime, perhaps, finding a way to make the shipping free and physical returns as hassle-free as practical and possible in the virtual world.

For credit unions, the best analogy may be that brass ring of omnichannel delivery that is truly integrated, that looks and feels the same regardless of device, including in the rep-engineered branch.

If The Shoe Fits

If people are behaving differently online, then maybe we have to, too. I’m not sure what the equivalent of returning a pair of shoes would be in our space. Maybe making a deposit and then withdrawing it? I’m not sure, but I am sure that automation is involved. Exhibit A and B would be e-signing loan documents and mobile check deposits. The latter is pretty ubiquitous; the former is still not as much.

Credit unions are doing great. Share portfolios are projected to have grown 7.0 percent year-over-year as of December 2015, and loan growth is projected to exceed 10.0 percent, according to analysis of more than 6,000 credit unions currently available through Callahan & Associates’ FirstLook program.

And as for Michael Kors and that conference call? Investors cheered as the company beat expectations. The stock jumped 24% that day.

So, the glass really is half full, and should stay that way for a while. The retail sector is not a mirror of financial services, especially not of not-for-profit cooperatives, but watching how other industries respond to changing consumer behavior still seems like a mighty fine idea as we think about mobile-first strategies and beyond.

There’s no single answer, of course, but plenty food for thought. Here’s some more: 6 Big Ideas For 2016.

Please share your own ideas with us anytime. I’m at jjeffreys@callahan.com and you can post your thoughts in the comments section below, as well.

We hope to hear from you soon.

February 10, 2016

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