No. 2 K mart joins the bank-where-you-shop trend in retailing

There may be no ``blue-light specials,'' but plenty of consumers are beginning to find it both convenient and profitable to bank at the same place they shop: Kmart department stores. The nation's No. 2 retailer is teaming up with the seventh-largest savings-and-loan, California-based First Nationwide Bank, which is owned by the Ford Motor Company.

This means that K mart - like the nation's largest retailer, Sears, Roebuck & Co. - is offering in-store financial services to customers. Unlike Sears, however, Kmart is doing this through financial companies it does not actually own.

But the K mart-First Nationwide link shows how both the retail and financial service industries continue to adapt to changing consumer demands and the impact of government deregulation.

As a result of their in-store shopping program, both Kmart and First Nationwide are forecasting increased business and profits. Consumers will get longer banking hours.

First Nationwide opened its first 10 K mart branches in San Diego in 1984. By the end of last year, that number had swelled to 44. In what First Nationwide chairman Anthony Frank describes as ``a very ambitious program,'' the bank and its affiliates will open ``at least 150'' K mart branches this year.

``This is a multiyear program, and we hope and expect that we'll be going on in '88 and '89 into many more of Kmarts than 2,000 stores,'' Mr. Frank added during a briefing last week at Ford headquarters in the Detroit suburbs.

Ford acquired First Nationwide in August 1985 for $493 million.

According to K mart officials, there should be banking facilities in at least half of their stores by the early 1990s (along with automatic teller machines in hundreds more Kmarts). Frank forecasts a growth rate of as many as 200 branches a year by 1988.

Why all the interest in retail banking?

For First Nationwide, it offers a quick and inexpensive way to expand. The S&L has aggressively ventured into the new field of interstate banking, largely through the tactic of acquiring weak or failed savings-and-loans which offer it the regulatory rights to operate out of state.

According to Frank, 80 percent of all banking customers are in roughly 20 of the largest states, including California, New York, and Ohio - three of the eight states it already operates in.

In recent weeks, the S&L acquired rights to six more states, including such lucrative ones as Michigan and Illinois.

Obtaining regulatory rights is only half the battle, however. The next step is to set up banking branches. But in some of the most attractive areas, costs can be prohibitive, even though First Nationwide can draw on the considerable financial resources of Ford.

This is where K mart comes in. The retailer already has stores in the vast majority of markets a financial service provider finds attractive.

K mart simply makes room among its pots and pans, sporting goods and small appliances for First Nationwide to set up a tiny branch office - some 136 square feet, compared with the 4,000 to 5,000 square feet of a standard, independent branch office.

Though neither side will give specific details, they indicate the S&L pays a lease rate based partly on a fixed monthly fee, along with a percentage of gross revenues.

Frank indicates that comes out to less than half the cost, per account, of maintaining a more traditional branch office.

In turn, First Nationwide is returning some of those savings in the form of higher interest rates paid on customer accounts. Frank says these average about 30 to 60 basis points above the rates of competing banks.

First Nationwide has found that the typical savings account for customers banking at a K mart branch averages about $17,000 in deposits, roughly twice the national S&L - and First Nationwide's own - norm.

The California store branches have averaged $4 million a year in new deposits at each store while generating roughly the same volume in new loans.

K mart chairman Bernard Fauber says the success of the banking program has been unexpected.

``It was certainly surprising to me,'' he says, ``and almost incredible that so many people would walk into a K mart and hand you large sums of money and say take care of this for us.''

Though company executives decline to discuss the specific revenues generated by the retail banking program, they say the project is clearly more profitable than, as one official puts it, ``using that same space to sell pots and pans.''

In fact, K mart executives are seriously considering a move into other areas of retail finance. Although they are selling off a K mart insurance subsidiary, they hope a new owner would agree to expand the operation, opening offices in as many as 1,000 stores.

There are insurance offices at a total of 156 Kmarts in Florida, Georgia, New Mexico, and Texas.

Meanwhile, K mart is leasing space in 13 stores in Michigan and Wisconsin to the Michigan-based State Wide Real Estate.

A little further off on the horizon, K mart officials say their stores might provide discount stock brokerage and other upscale financial operations.

This is similar to what Sears does through its Sears Financial Network, which includes the Dean Witter Reynolds brokerage, Allstate Insurance, and Coldwell Banker real estate service (all of which are owned by Sears).

Frank of First Nationwide says his S&L is considering offering these services through Kmart branches. But, he notes, First Nationwide wants to ``stick to the basics for now.''