Customers Rate Satisfaction with E-Commerce, Brick-and-Mortar Retailers

As the economy improves, albeit at a very slow pace, aggregate customer satisfaction with goods and services has improved as well. The ACSI gain for the final quarter of 2011 is very small, but it represents the fourth consecutive quarter without a decline.

The national ACSI advanced by 0.1 percent to an overall score of 75.8. In total, the ACSI national average gained 0.7 percent in 2011.

The good news is that customer satisfaction continues to climb, which has a positive effect on consumer demand and economic growth. The bad news is that the customer satisfaction improvement is tepid. This is particularly noteworthy because a good part of the higher customer satisfaction in Q4 came from lower gas prices. Gas prices have since reversed course and are now rising, which means that customers obviously are going to be less pleased.

Nevertheless, supermarkets and specialty retailers improved 1.3 percent to ACSI scores of 76 and 79, respectively; department and discount stores stay at 76; and online retail rose 1.3 percent to 81. Q4 retail sales were also up 5 percent from the previous year, and total retail sales rose by 8 percent in 2011. Among individual companies, ACSI gainers outnumbered decliners by nearly a two-to-one margin: 55 percent improved, 29 percent declined, and 16 percent were unchanged. Health and personal-care stores experienced the only weakening in customer satisfaction among retailers, as the industry’s score dipped 1.3 percent to 76. Online brokerage also showed a downturn of 2.6 percent to 76, most likely related to weaker growth in the stock market itself.

Gross domestic product grew by 2.8 percent during the fourth quarter of 2011, and consumer spending was up by 2 percent. For the first quarter of 2012, the ACSI growth in 2011 pointed to a consumer spending increase of about of 2.8 percent.

Supermarkets

Customer satisfaction with supermarkets improved by 1.3 percent to an ACSI score of 76, despite a continued rise in food prices. In 2011, the cost of food prepared at home rose 6.0 percent, following a 1.7-percent increase in 2010. Even though this is a price-sensitive market, the negative effect on customer satisfaction from higher prices was dampened by changes in stores (e.g., remodeling and freshening up) and by expansion of merchandise selections—all designed to improve the shopping experience for consumers, including making it easier to compare prices.

As always, Publix Super Markets reigned supreme in customer satisfaction among grocers—as it has each year since 1994. Publix holds steady with an excellent ACSI score of 84. Meanwhile, Walmart’s supermarket business is at the bottom of the category, down 3 percent to 69—a score that is well below the next-closest chain, SuperValu, at 74 (unchanged). In an industry where most competitors try to leverage quality, in one form or another, as a means to compensate for price increases, Walmart’s concentration on price alone does not seem to help satisfy customers. Many consumers may be patronizing Walmart because their economic situation dictates it, not because they have a strong preference for it.

Whole Foods Market places second behind Publix, inching up yet again with a 1-percent gain to 80. Customer satisfaction for Whole Foods has trended upward every year since 2007—its first year of measurement in ACSI. Whole Foods is one of many examples of the payoff from satisfied customers. Its large gain in ACSI (10%) during the past four years is nearly twice that of any other chain, and its stock price is up more than 600 percent over the past three years.

Specialty retail stores

Retailers that specialize in particular merchandise, such as home improvement, electronics, office supplies, or books, also do a better job of satisfying customers. The category was up 1.3 percent to an ACSI score of 79, and 2011 marked the fourth straight year of customer satisfaction improvement. Membership warehouse clubs lead the way, with Costco on top, up 1 percent to 83, followed by Walmart’s Sam’s Club brand, which gained 4 percent to 81. Barnes & Noble dropped out of the lead, falling 4 percent to 79. Now alone among the big bookstore chains after Borders folded last year, Barnes & Noble is trying to stave off bankruptcy as the book industry continues to evolve in the digital age. The retailer faces tough competition from Amazon.com (and its much higher level of customer satisfaction—an ACSI score of 86). Amazon’s online model for selling books and music is more cost-efficient, and its Kindle e-reader is a formidable competitor to Barnes & Noble’s Nook e-reader.

There is not much separation in customer satisfaction in the office-supply business. Staples and Office Depot both slipped 2 percent to 79, while OfficeMax rebounded from a big drop last year, gaining 5 percent to 78. The gain appeared to come from customer service improvements. Because OfficeMax is much smaller than Staples or Office Depot, it is difficult for the company to compete on price, and the gain in customer satisfaction is probably welcome news. But if you are smaller than your competitors, it is usually not enough to be on par with them in customer satisfaction—you have to be better in order to be able to compete effectively.

Among the home improvement retailers, The Home Depot advanced for a fourth straight year, up 4 percent to 78—an all-time high for the company. The Home Depot’s ACSI surge is almost enough to catch rival Lowe’s (up 3% to 79) for the first time since the two were equal in customer satisfaction in 2001. Although The Home Depot’s customer service is still weaker than most retailers, it continues to improve.

Department and discount stores

After three years of small gains, customer satisfaction with department and discount stores leveled off at an ACSI score of 76. Pricing pressure remains a challenge because this is the only retail category where price seems to trump quality. Nordstrom, however, is an exception and remains entrenched at the top, improving 2 percent to an ACSI score of 84. J.C. Penney Co. (now jcpenney) is up 2 percent to 82, passing Kohl’s (unchanged at 81) for the first time since the 2002 debut of Kohl’s in ACSI. Target and Dillard’s follow close behind, both improving 3 percent to 80.

Several other chains cluster at or slightly above the industry average. Dollar General fell 3 percent to an ACSI score of 78, followed closely by Macy’s (up 1% to 77) and Sears (up 1% to 76). The world’s largest retailer, Walmart, trailed the entire industry after dropping 4 percent to 70—a score that is well below the department and discount-store average. Walmart’s downturn in customer satisfaction, and the large gap that separates it from the competition, is similar to its standing in the supermarket category. Walmart’s share price is up 12 percent from a year ago, beating the market, but financial performance appears to be buoyed by overseas growth—U.S. sales remain mired in a two-year slump. In view of Walmart’s focus on value for money, this may seem surprising since shoppers continue to be very price-conscious. The problem may be that the denominator in the money/value expression is seen as too weak by consumers, and that dollar stores and other big-box retailers are viewed as viable alternatives, offering different combinations of service and product quality along with low price.

Health and personal-care stores

Customer satisfaction with health and personal-care (drug) stores declined for a second straight year, falling 1.3 percent to an ACSI score of 76. This is the lone category in retail to deteriorate this quarter. Smaller is better among drugstores. The aggregate of all small stores gained 1 percent to an industry high of 82—a score that is much higher than the large chains. As with banks, personalized service matters for drugstores, and smaller players are often better at it. Among the big three, Walgreens fell 3 percent into a tie with Rite Aid, unchanged at 75. CVS Caremark was at the bottom following a 1-percent drop to a seven-year low of 73. CVS has faced cost-cutting challenges as sales continued to fall throughout 2011. Under these circumstances it is difficult to maintain high levels of customer satisfaction.

Internet retail

After a drop a year ago, customer-satisfaction growth with online retail was back up with a 1.3 percent gain to an ACSI score of 81. This was not quite the satisfaction level reached two years ago, but is still very high. In fact, Internet retail was the highest ACSI-scoring retail category, well above most traditional stores. Both Nordstrom and Costco, however, outperformed the online retail average and did better in ACSI than all but the very best Internet retailers. In the latter group, Amazon led at 86, despite a slight 1-percent fall-off, followed closely by Newegg, which gained 1 percent to 85. Overstock.com was next at an unchanged score of 83. Matching the industry average, eBay was steady at 81. The aggregate of all other online retailers, including the websites of the brick-and-mortar chains such as Target and Walmart, gained 3 percent to 80.

Customer satisfaction for movie-rental provider Netflix took a predictably large hit when the company raised prices during the summer in what amounted to a 60-percent increase for its combined streaming video and DVD-by-mail rental services. The ACSI score for Netflix plunged 14 percent to 74—the bottom of the category. This is one of the biggest single-year drops ever seen in ACSI history. During the third quarter of 2011, the company lost some 800,000 subscribers, and its stock plummeted 75 percent. Since then, Netflix has bounced back somewhat, adding around 600,000 subscribers in the fourth quarter, and its stock price has doubled from its low. Over time, Netflix may be able to turn around its slumping customer satisfaction as more customers shed the DVD-by-mail service in favor of the streaming service, but streaming presents its own challenges with the threat of new competitive entry and difficulties in securing high quality content.

Internet brokerage

Customer satisfaction with online brokerage services fell 2.6 percent to an ACSI score of 76. Despite efforts by brokerages to improve their websites for making and recording transactions, market performance plays a large role in determining investor satisfaction. In 2008 when the market plunged 38 percent, the ACSI score for online brokerage fell 6 percent. After two years of double-digit market gains and recovering ACSI scores, weaker growth in 2011 has left investors less satisfied again.

Large online brokers did a better job of satisfying customers than their smaller counterparts, but there was very little separation among the four largest brokers. Charles Schwab holds at least a share of the lead for a third straight year, down 1 percent to 79 and tied with Fidelity (up 1%) and E*TRADE (up 4%). TD Ameritrade is close behind at 78 after a 1-percent gain. E*TRADE has made investments in its call center operations and tweaked its website in order to provide better customer service, which may be showing in its improved score. The aggregate for all other online brokerage services such as Vanguard and Scottrade dropped 4 percent to 75, well below the biggest brokers.

Internet travel

Travel websites for booking airfares, hotels, and car rentals were unchanged at an ACSI score of 78. Value for money remained strong throughout the category because discounting continues to attract more consumers. Travelocity topped the category, up 3 percent to 79, and equaled the aggregate of all smaller travel websites, which was unchanged. Travelocity swapped places with last year’s leader Expedia, which fell 3 percent to 77. Both Orbitz (up 1%) and Priceline (up 4%) were close behind at 76. Priceline’s gain erased its decline from a year ago. During the past few years, Priceline moved away from its “name your own price” approach toward a more conventional travel-services model. Results have been mixed so far, but this year’s uptick may signal that Priceline might be on the right track. Investors seem to have taken notice: Priceline stock is up 24 percent from a year ago.

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