Customer Satisfaction is Up for Retailers

Customer satisfaction with retailers improved in the fourth quarter of 2008, according to the American Customer Satisfaction Index.
The index, produced by the University of Michigan’s Ross School of Business in partnership with the American Society for Quality, and CFI Group, measures customer satisfaction in the retail, e-commerce, and finance and insurance sectors.

The ACSI retail sector index, which tracks department and discount stores, specialty retail stores, supermarkets, gas stations, and health and personal care stores, said the index gained 1.3 percent to 75.2 for the quarter.

Department and discount stores (up 1.3 percent to 74) and specialty retailers (up 1.3 percent to 76) were among retailers that had the most improvement for the quarter. The ACSI score with service stations was up by 5.7 percent to a score of 74 for the period, fueled by lower gas prices.

Among department and discount stores, Nordstrom and Kohl’s lead with an ACSI score of 80, the former on the strength of its customer service, the latter for its superior value. Deep discount store Dollar General dropped 4 percent to 75, not from a decline in service, but from a migration of a higher socio-economic group of consumers to the retailer—another effect of the recession—a group that tends to be harder to please.

Discount store giant Wal-Mart has mixed results, falling 4 percent for its supermarket business to an ACSI score of 68, well below the industry average, but rising 3 percent for its non-grocery discount business to 70. Wal-Mart’s Sam’s Club also rises 3 percent to 79.

In the specialty retail category Home Depot climbed 5 percent to an ACSI score of 70, matching its best result in four years. However, the improvement failed to lift Home Depot from the bottom of the industry, and the home improvement retailer still trails rival Lowe’s (76) by a wide margin. Office Depot moves in the opposite direction, falling 4 percent to 75 amid store closings and layoffs.

The index did not include retail jewelers.

Most retailers saw falling stock prices, but those that improved customer satisfaction were punished less by investors, according to the index. On average, retailers with improving ACSI scores lost about 30 percent of their market value in 2008, while those with declining ACSI scores lost nearly twice as much (57 percent). By comparison, the S&P 500 dropped by 38 percent. 

“Cost-cutting that adversely impacts customer satisfaction isn’t a cure,” said professor Claes Fornell, head of the ACSI and author of The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference. “It may provide short term earnings relief, but having dissatisfied customers take their business elsewhere is making the problem worse.”

Supermarkets are unchanged with an ACSI score of 76 even though food prices remain high. Publix is on top with a score of 82, the 15th straight year the supermarket chain has led the category. Safeway gains 4 percent to 75, its highest score since 2002. The chain is upgrading stores to its new Lifestyle format featuring more square footage for expanded offerings of organic food and other merchandise.

The ACSI score for online retailers declined 1.2 percent to 82, driven mostly by drops for Amazon and eBay.

But with a small dip, Amazon (down 2 percent to 86) remains the second highest scoring firm of all companies in this release. The situation for e-Bay is different. Its ACSI score slumped 4 percent to 78, an all-time low. Revenues fell 7 percent in the fourth quarter, marking eBay’s first ever negative year-on-year quarter, and its stock price lost almost 60 percent in 2008. Newegg leads the online retail category with a score of 88. The computer hardware and software retailer has done well offering consistently high quality service and quick response time.

Overall results
Customer satisfaction with the goods and services that Americans buy improved in the fourth quarter of 2008, according to the ACSI. The index climbed to 75.7 on the ACSI’s 100-point scale, up 0.9 percent from the previous quarter.

Close to the end of the 2001 recession, an uptick in ACSI signaled that a rebound in the economy was near. But as the current recession has deepened, consumer behavior has changed much more than in earlier economic slowdowns, according to Fornell. Consumer spending has continued to weaken while savings have gone up, suggesting that at least for the short term there will be less revenue for sellers and more pressure on profit margins and for cost reductions.  

“For consumer spending to rebound, two conditions must be met: consumers must be favorably disposed to spend and have the means to spend,” Fornell said. “The good news from ACSI is that the first condition has been met: customer satisfaction is looking up. But it remains to be seen to what extent the government stimulus plan will help translate stronger satisfaction into increased consumer demand.”

Customer satisfaction becomes even more important to individual companies, as they need to prevent customer defections and compete for shrinking dollars. It will also be in the public interest to find out whether or not companies that receive taxpayer money can improve quality, service and the satisfaction of their customers.

About ACSI
The American Customer Satisfaction Index is a national economic indicator of customer evaluations of the quality of products and services available to household consumers in the United States. It is updated each quarter with new measures for different sectors of the economy replacing data from the prior year. The overall ACSI score for a given quarter factors in scores from about 200 companies in 44 industries and from local and federal government services over the previous four quarters.

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