Wal-Mart banks on expansion

Discount Store News, Dec 14, 1998 by Richard Halverson

Plan calls for branch banks as in-store traffic drivers

TULSA, OKLA. -- The Arvest Bank Group controlled by the family of the late Sam Walton has made a move that could pave the way for unlimited expansion within Oklahoma-or the entire country. The bold strategy also includes the opening of bank branches in at least six more Wal-Mart Supercenters in the state.

Under federal banking law, Wal-Mart Stores and Arvest are considered affiliates because the same common interests, the Walton family, control both. Arvest, owned by Walton Family Enterprises, is chaired by Jim Walton. His older brother, Rob Walton, is WalMart's corporate chairman. Such an affiliation, however, does not mean that Wal-Mart is in the banking business.

The Arvest holding company First Bancshare drew attention recently when it took advantage of a loophole in Oklahoma banking law by obtaining four "interim bank charters" for new banks that were then quickly merged into the parent bank.

State banks chartered in Oklahoma are limited to just two branches. And State Bank & Trust, owned by Arvest through its First Bancshare holding company, already had its two. The interim bank charters, in effect, gave it another branch.

But in the face of opposition, including a lawsuit against the state banking department from the Community Bankers Association of Oklahoma, State Bank & Trust simply converted Dec. 1 to a federally regulated savings bank. Now, federal law permits it to open as many branches as it wishes anywhere in the United States.

To date, Wal-Mart has leased out about 500 sq. ft. of space for small branch banks in 448 out of 546 supercenters and in about 20 Wal-Mart discount stores as well. Going forward, the plan appears to call for every new super-center to include a bank, translating to 150 more branch banks next year. the number of supercenters the company intends to open.

The banks, which typically offer Saturday evening and Sunday afternoon banking hours, obviously help drive traffic in the supercenters.

Arvest now operates branch banks in 11 Wal-Mart supercenters. said Mary Beth Jesson, director of in-store operations for Arvest. In '99, Arvest will open at least four more, said Jesson. who coordinates branch banks in supercenters and supermarkets. In addition, Arvest is negotiating with another unnamed bank to acquire several branches that it operates in Wal-Mart supercenters.

Arvest has to bid for Wal-Mart supercenters along with other banks, Jesson said. "We win some, we lose some:

Arvest has no significant plans, however, to become a national player in community banking, Jesson said, despite persistent rumors to the contrary. Arvest will focus on supercenter branches in Oklahoma, Missouri and Arkansas, within easy supervisory distance.

Jesson acknowledged, however, that by converting State Bank to a thrift, Arvest has gained the ability to open branches throughout the country. Another bank did just that, she said, opening 50 branches in two different states after converting.

Arvest so far has converted no other banks to thrifts.

Business is growing so fast that Arvest recently hired a supercenter coordinator, according to a marketing representative. But Arvest is not a shoo-in for landing a spot in a new supercenter, said Donald Walker, president of State Bank & Trust, the Arvest owned Oklahoma bank.

State Bank now has branches in three supercenters, soon to be four. Wal-Mart puts the bank space out to bid, and State Bank has to bid just like everybody else.

State Bank has no intention of expanding outside Oklahoma, he added. Its immediate plans call for filling in the Oklahoma market with as many as 18 branches. Making the switch to a savings bank, or thrift, was the only way to branch out. Moreover, Arvest has no intention of becoming a national banking organization, Walker said.

Nonetheless, the expansion of supercenters westward and into the Midwest and Northeast could provide Arvest with an opportunity to become a bigger player in community banks.

Now that Arvest's State Bank is free to open as many branches in Oklahoma as it wishes, it will bid more aggressively on supercenters, predicted Jim McKeown, executive director of CBAO, Oklahoma City. When it could have only two branches or expand through interim charters for new banks, State Bank was selective.

Under terms of its recent lease in the new Sand Springs, Okla., supercenter branch bank, State Bank will pay an annual rent of $3 1,800, or about $600 a sq. ft., for a five-year lease, according to its application to the State Banking Department for an interim charter. In addition, it paid Wal-Mart $62,000 as key money to be amortized over the five years. The lease includes options for two five-year renewals.

                              November Sales

Chain                     Nov. '98   Nov. '97   % Chg. Comp-Store
                        (in $mil.) (in $mil.) from '97     % Chg.
[Wal-Mart.sup.1]         $10,070.0   $8,862.0    13.7%       6.5%
Kmart                      2,902.0    2,759.0      5.2        2.5
Target                          NA         NA     11.4        4.3
[Sears.sup.2]              2,610.0    2,730.0    (4.5)      (3.6)
Costco                     2,210.0    1,960.0     13.0        9.0
Sam's Club                 2,045.0    1,793.0     14.1       11.9
[JCPenney .sup.3]          1,600.0    1,550.0      3.3        4.9
Circuit [City.sup.4]         907.3      770.1     18.0        8.0
TJX                          772.0      718.0      8.0        3.0
Consolidated Stores          512.6      503.8      1.8      (3.1)
Kohl's                       422.4      365.6     15.5        3.2
Radio [Shack.sup.5]          327.8      322.9      2.0       Flat
BJ's Wholesale Club          306.2      277.5     10.3        3.6
Dollar General               291.3      247.4     17.8        4.7
Ames                         265.9      239.5     11.0       10.0
[ShopKo.sup.6]               224.2      201.7     11.2        3.0
Ross Stores                  209.0      190.0     10.0        3.0
Family Dollars               208.6      172.8     14.1        6.2
Hills Stores                 208.2      232.6   (10.5)     (10.5)
Michaels Stores              189.9      180.0      5.0      (4.0)
Value City                   118.1      109.0      8.3        6.1
Goody's Family Clothing      117.1      114.9      1.9     (10.0)
Filene's Basement             58.2       53.3      9.0       Flat
Fred's                        52.0       46.1     12.8        2.4