Industry Insights Archives | Page 3 of 3

Banking – A Changed World

by Kevin Jennings | Sep 11, 2017 | All Blog Entries, Guest Article, Industry Insights

Guest Article By: A.G. Divers, Founder and former president, The Bank of Tampa

(Editor’s note: The Bank of Tampa currently holds over $1.2 billion in deposits and is considered the premier community bank in the Tampa-Clearwater-St. Pete market)

When I was young, the old guys would clench their teeth around their cigars and grumble “the world ain’t what it used to be.” If I sound that way I apologize in advance.

In the mid 1950’s I attended St. Petersburg Junior College and had no idea what I wanted to do with my life. I took a course called Money and Banking and heard the professor explain that “the role of a bank is to take the surplus funds of a community and lend them wisely to local businesses to help them achieve their goals – and in the process enhance the economy of the community.” That stuck with me (as you can tell it did if I remember it sixty years later) and I went home that day and announced that I wanted to become a banker. I majored in banking at the University of Florida – a specialty that included only 18 students. I was asked by one of them “Jerry, what are you doing here? You don’t have a father, grandfather or an uncle who owns a bank!”

After serving in the United States Navy, in 1961 I began my career in Tampa at The Exchange National Bank of Tampa. That bank was at that time seventh largest in the state with $126 million in deposits. It was a close second to the largest bank in Tampa, and the two were by far the largest banks along the West Coast of Florida. There were no out of state banks operating in Florida, no holding companies, no branches and no computers. Most banks were managed by families which had a large stake in their ownership. And most of the banks in Florida at that time were survivors of the depression, and operated very conservatively. The staffs of Florida banks considered themselves part of the “bank family” and there was negligible turnover of staff.

Banking was commonly referred to as a profession, and bankers in Tampa were part of the respected elite.

The president of my bank, whose father had preceded him in that role, told me a bank should keep one third of its assets in cash, one third in bonds and one third in loans. Because our deposits were subject to overnight withdrawal, no loan should have a maturity of over a year, and under no circumstances were we to make a loan secured by real estate. Not long after I started I worked with the manager of the bond portfolio, and learned that we kept 10% of the portfolio in municipal bonds, laddered over twenty years, and 90 % in treasuries, laddered over five years. The bank was open Monday through Friday from ten to two. The staff – including officers – were gone by three thirty. I remember thinking “this is the life.”

Early on I was in training to become a loan officer. I thought it a good idea to go see the customer and learn his business first hand. I was told that was undignified and that “if someone wants a loan they can come in and ask for it.” As my grandfather, an Indiana farmer, used to say “them was the good days.”

One message from that bank president, which I thought then was timeless, and I still do though there aren’t many like me anymore, described what were the “first two rules of banking.” The first was “know your customer.” The reason for this, of course, is to know the customer’s personal values – what the textbooks refer to as character; the customer’s ability; and the customer’s current financial condition and history, in order to properly assess the likelihood of the repayment of the loan. The second rule was “know your customer’s business and financial goals so that you can help him achieve them.” Sounds like that professor at junior college.

With all the changes which have taken place in banking, at The Bank of Tampa we have tried to live by those two rules in our relationships with our customers. That, more than anything else, explains our success. It explains more than anything else the need for banks like ours across the country. We only have a small slice of the total banking market, but I read recently that community banks make more than half the loans to small business made in the United States.

Banking regulation has made it next to impossible to use our own judgment in making loans to individuals (we have to offer “products” and use standard criteria to grant them) but we still work closely with and tailor our loans to the specific needs of our business customers to help them get where they want to go. Let us hope with no doubt continued change in the future, those rules – and our ability to implement them – won’t change.

The Music Industry: Then and Now

by Kevin Jennings | Aug 16, 2017 | All Blog Entries, Industry Insights

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By: Kyle Jennings

Today, everything is digital; music is no exception. The music industry is almost entirely online. Yesterday’s Walkman is replaced by today’s iPhone. Record stores are out, streaming services are in. Streaming services make music easy to access, even while on-the-go.

Record labels and publishing companies are closing in increasing numbers. Traditionally, labels provided artists with start-up money, marketing and production. Artists today can record music themselves easily and inexpensively. They distribute music and gain audience through social media.

New music is always accessible today. Streaming apps recommend songs based on the subscriber’s prior listening experience. Twenty years ago, to hear new songs, fans had to hear it on the radio. Or, they bought an album based on the performer.

How music is sold and priced changed significantly. In 1991, a popular album such as R.E.M.’s Out of Time sold for $19. In the early 2000s, iTunes and other downloadable music sites took over. Listeners could purchase individual songs for an average price of about $1.29 instead of the entire album. After Spotify’s release in 2008, purchases declined further. Subscribers listen to their personal playlists.

Consumers demand free music. While streaming services can be free, playback is interspersed with ads. Spotify, the largest music-streaming service, charges a $10 monthly subscription fee to eliminate ads. Despite this low fee, 57% of Spotify’s 140 million active users pay no fee.

Industry experts believe streaming saved music. The internet which once harmed music with pirating is now the largest source of revenue. The industry struggled before two separate lawsuits settled in 2000 halted Napster and other peer-to-peer sharing sites from providing illegal music downloads. Since then, streaming companies, such as Spotify and Apple Music, have emerged and taken control of music. In 2016, industry revenues grew for the second consecutive year; the first such consecutive increase since 1999. The decrease in sales of music to individuals is more than offset by the increase in streaming revenues.

Artists believe streaming devalues their work. In past years, artists received royalties from album sales on CD, vinyl or other media. Artists receive comparatively little revenue from streaming services. According to The American Society of Composers, Authors and Publishers (ASCAP) which collects and processes royalties for artists, the average royalty songwriters earn for a song streamed a million times on the major audio streaming services is only about $125. Royalty rates range from $0.0006 to $0.0167 per play. In 1990, artists received 9.1 cents for every song sold.

In December 2015, the Copyright Royalty Board (CRB) set new streaming-music rates for 2016 at 17 cents per 100 plays on free, ad-supported services and 22 cents on subscription-based platforms. It does not apply to platforms like giants Spotify and Apple Music which allow subscribers to create playlists.

The music industry and YouTube are at odds. Many stream music on YouTube, yet there is a “value gap” between what YouTube earns in advertising and the royalties it pays. YouTube paid the music industry $1 billion in 2016, a little over $1 per user. Spotify paid record labels an estimated $18 per user in 2015. YouTube counters it generates revenue from users who would not pay for a subscription streaming service. This is not satisfactory to the music industry.

As royalties from music sales decline, more artists are turning to live performances for income. Ray Waddell, at Oak View Group, a live-business consultancy and development company, claimed: “It used to be that you toured to help sell the record, now the record helps support the tour.”

There is no better time to be a music fan. The music industry continues to evolve; it will be exciting to see what new directions it will take next.

How The Retail Industry Is Changing

by Kevin Jennings | Jul 12, 2017 | All Blog Entries, Industry Insights

Once-coveted retail spaces now hang “For Rent” signs in their windows. The retail industry is rapidly changing. There are many explanations why.

Technology, particularly the internet, has a major impact on the retail industry. Overbuilding of retail space is important, too.

In 1990, Tim Berners-Lee introduced the WorldWideWeb and gave the web its first browser, changing retail forever. Not until 1994 did e-commerce really begin to flourish. In 1995, Amazon launched. Almost anything a consumer needed could be bought online.

The internet took the retail industry by storm. It left those retailers with only brick-and-mortar presences in the dust. Even 10 years has made a difference, proving retailers must quickly update their business model or run the risk of failure. Blockbuster and RadioShack are prime examples of retailers who did not successfully adjust their business models. Both declared bankruptcy, in 2010 and 2017, respectively.

Today, it is difficult for a retailer to thrive without an internet presence. New retailers are rapidly emerging with a lesser need for floor space because of online shopping. Many retailers combine online stores with their brick-and-mortar stores in a practice known as omni-channel retailing. Research proves physical stores boost online sales, attesting omni-channeling is complimentary, not contradictory. Amazon’s recent acquisition of Whole Foods demonstrates this.

Retailers use alerts sourcing from Facebook to Twitter to their own app to inform users of sales or to reward them with coupons. A consumer with no shopping plans may be drawn to shop. With price comparison apps, consumers virtually shop for an item at multiple stores to find the best price. Web analytics, an internet tool tracking customer browsing patterns, is increasingly popular among retailers.

How people shop has changed drastically over the past 25 years. Sridhar Ramaswamy, in Omnichannel, explains one such change: “shoppers know as much as the salespeople.” 25 years ago, a shopper relied on a salesperson to select the right items. Today, shoppers do extensive research, often knowing exactly what they will buy before they set foot in a store. Shoppers 25 years ago decided where to shop based on familiarity. Today, consumers use their smartphones to find the closest store that fits their needs.

Online shopping is a private activity. Brick-and-mortar retailers are going in the complete opposite direction, promoting shopping as a communal experience. Retailers are looking to make stores a fun and exciting experience.

Brick-and-mortars retailers seek innovation to stay competitive with online stores. An example is tracking technology in shopping carts which record the browsing patterns of customers. These stores now receive the same analytics as online stores.

The challenge retailers face is to be the first to implement an innovation. Darrel Rigby of the Harvard Business Review explains, “Adopting successful innovations three years after competitors do is unlikely to generate much buzz or traffic.”

Brick-and-mortar retailers are trying to match the speed and efficiency of online shopping in their stores. Fast-fashion retailers buy large spaces, allowing them to update their selections more quickly than ever.

Many blame the internet for the decline of traditional retail stores, yet the internet is just one cause. In Q1 2017, the U.S. Census Bureau reported e-commerce accounted for only 8.5 percent of all retail sales. Although online shopping is growing more quickly than traditional retail, the decline of brick-and-mortar retail also reflects the overabundance of space.

Terry Lundgren, CEO of Macy’s, described the amount of U. S. retail space as “ridiculous.” Nearly one-fifth of the country’s enclosed malls have vacancy rates of 10 percent or greater, reports Nelson D. Schwartz of the New York Times. Although high-end malls perform well, small and medium income malls are faced with rising amounts of empty space, or are even closing altogether.

U.S. retail space equals about 7.3 square feet per capita, much higher than other developed nations. Japan and France have 1.7 square feet per capita while the U.K. has 1.3 square feet. This excessive unoccupied space leads to a rise in rents among the remaining retailers, and subsequently, the shuttering of stores at an increasingly rapid rate.