The Big American Retailers With The Worst Service

Customer satisfaction in the retail and online e-commerce industries is getting worse. There is no single reason for this, but it is likely that the recent economic downturn is one of the biggest factors. A recession often cuts into retail payrolls, and so full-time workers are replaced by part-time ones. Anxiety among people who are not laid off rises. The employees in the stores who are the spokespeople for their companies have their morale shaken. A drop-off in customer service is bound to result.

Recessions also rob businesses of the ability to compete effectively on price. A downturn hurts sales. This takes away the flexibility for businesses to offer discounts, unless their balance sheets are strong enough to fund losses in exchange for improved market share. Big companies such as Wal-Mart can afford to take a long view. Much smaller ones including OfficeMax probably cannot.

The American Customer Satisfaction Index is as close to the gold standard for the measurement of customer service. ACSI reports scores on a 0-100 scale at the national level and produces indexes for 10 economic sectors, 45 industries (including e-commerce and e-business), and more than 225 companies.

The ASCI data which was just released on the retail and e-commerce industries shows an erosion in consumer satisfaction scores. It is the largest drop the research operation has reported since 2008 – at the depth of the recession.

National ACSI figures for all economic sectors were off to 73.5 in the fourth quarter compared to 75.7 in the third. The national retail number fell from 76.2 in 2009 to 75 in 2010. E-commerce dropped even more from 81.4 to 79.3 year compared to the previous year.

24/7 Wall St. reviewed the data to find the companies which were hardest hit in the ratings from 2009 to 2010. We picked only firms with satisfaction ratings down at least 2% year-over-year with the goal of finding common themes between the companies, or at least reasons why they are performing worse than their peers.

After reviewing the data, 24/7 Wall St. observed several key attributes in common between the companies on this list.  Companies which were in the number 2 or number 3 spot behind a large industry leader often did very poorly. These companies include Target (NYSE: TGT), Lowe’s (NYSE: LOW), OfficeMax (NYSE: OMX) and Newegg. Firms which are not in the top spot for their sector often do not have the financial resources of their larger competitors. They are often the first to begin layoffs, meaning their staff-per-location falls along with morale, and often the number experienced workers. People who have been with a company the longest often earn the most. As they are laid off, institutional knowledge is bled out of a company. Cheap becomes expensive.

Although satisfaction with e-commerce fell, it still is well ahead of the average ratings for bricks-and-mortar retailers. It is hard for Barnes & Noble to get a higher rating than Amazon.com. Amazon has more inventory, a wider array of products, and a cost base that makes discounting a more reasonable business tactic. SUPERVALU and other grocery chains have very little e-commerce capacity and operate in an industry in which inflation drives food prices higher nearly every week. SUPERVALU has to try to pass that along to its customers.

It’s too early to say whether these scores will rebound with the end of the recession. Americans may have become inured to poor service. They expect that companies which have cut costs will try to maintain the profits that fewer people and services for the customer allows. The ASCI scores may continue to fall because in the case of many consumers, their alternatives for purchasing books, groceries or clothes are severely limited. Retailers can afford to cut corners when their customers have few options.

9. Newegg
> Industry: Internet Retail
> % Change In The Last Year: -2.3%
> % Change Since First Year Of Rating: -3.4%
> % Change of Industry In The Past Year: -3.6%

In 2008, Newegg led the Internet retail industry in customer satisfaction. The company is now behind both Amazon and Netflix, with a score of 84. Newegg.com, an online consumer electronics retailer originally focused on discount computer components, has now expanded to consumer electronics, including televisions and digital cameras. This shift to a wider range of products, and customers, has led to less impressive deals in many cases.   Many people simply looking for a better price on a flat-screen TV are now confused by a website originally designed for tech-savvy consumers.

8. Barnes & Noble
> Industry: Specialty Retail Stores
> % Change In The Last Year: -2.4%
> % Change Since First Year Of Rating: -1.2%
> % Change of Industry In The Past Year: +1.3%

Barnes & Noble currently has a customer satisfaction score of 82, a decrease of 2.4% from 2009. The company may suffer more than any retailer on this list in comparison to a larger online rival. Amazon.com has many more titles online than Barnes & Noble has in stores. The online Barnes & Noble brand attracts far fewer visitors than Amazon, which also offers a wide array of products besides books. Furthermore, Amazon has been able to market its Kindle e-reader as superior to the Barnes & Noble Nook. All of these taken together are a good demonstration of why bricks-and-mortar operations are losing customers to their large e-commerce competitors. Customer satisfaction is based on selection, ease of access and price.

7. Target
> Industry: Department & Discount Stores
> % Change In The Last Year: -2.5%
> % Change Since First Year Of Rating: +4%
> % Change of Industry In The Past Year: +1.3%

Target’s customer satisfaction score dropped 2.5% to 78 in 2010, decreasing its rank from second to sixth. The average score for department and discount stores is 76, which has increased 1.3% from a score of 75 in 2009. Target operates in the shadows of rival Wal-Mart, which leads the industry in everyday low prices and has to compete in a part of the retail industry that is driven almost exclusively by price. The primacy of price among the largest national chains may be reflected in how poorly they all do in customer service. Sears and Wal-Mart performed even worse, with scores of 75 and 73, respectively. It appears that the stores in this category have divided themselves into two sectors. In one, stores have low prices and relatively few frills. The companies at the top such as Nordstrom have elected to combine strong in-store service and higher prices.

6. Lowe’s
> Industry: Specialty Retail Stores
> % Change In The Last Year: -2.5%
> % Change Since First Year Of Rating: +2.7%
> % Change of Industry In The Past Year: +1.3%

Lowe’s customer service rating drop of 2.5% was quite sharp compared to that of its rival, Home Depot, which underwent an increase of 4.2%. Demand for housing supplies is weak because of the huge drop in home prices. This caused fiscal year sales to drop in 2009 and 2010. Lowe’s recently cut the number of its middle management staff, which is likely to hurt morale.  Several analysts pointed out that the cuts in full-time staff in favor of either cost savings or part-time workers badly hurt the company’s ability to provide customer service.

5. TJX
> Industry: Specialty Retail Stores
> % Change In The Last Year: -2.6%
> % Change Since First Year Of Rating: +2.7%
> % Change of Industry In The Past Year: +1.3%

TJX currently has a score of 76, a 2.6% decrease from 2009. This is one of the lowest scores among specialty retail stores, where the average is 78. TJ Maxx is caught between large chains such as Macy’s and Target and more specialized stores such as Abercrombie & Fitch. It is also likely TJ Maxx does not have a strong enough brand to engender the kind of loyalty that helps drive the industry. The company’s lack of a major online presence almost certainly hurts it among its target of young consumers.

4. SUPERVALU
> Industry: Supermarkets
> % Change In The Last Year: -3.9%
> % Change Since First Year Of Rating: -3.9%
> % Change of Industry In The Past Year: -1.3%

SUPERVALU has a score of 74, which is a 3.9% drop from 2009. This is lower than the industry average, which is 75. Competitors which do much better include Publix, which scored 84, and Whole Foods, which scored 79. SUPERVALU has 160,000 employees, and it operates over 2400 discount food retail scores and 855 Save-A-Lot stores. SUPERVALU is one of the smallest national chains in its business. Kroger and Safeway are much larger. The grocery store industry in general has been hurt by the rapid rise of agricultural commodities including corn, wheat, and coffee. Supermarkets have done what they can to pass these costs onto shoppers, a practice which is unlikely to help customer satisfaction. SUPERVALU has also suffered during the recession. Revenue has dropped over 5% in the last fiscal year, and the company had razor-thin margins. Consequently, SUPERVALU trades near its 52-week low. The lesson from SUPERVALU is that selling commodity-based products during a period of rapid inflation will almost certainly alienate customers, even if the balance of the company’s relationship with consumers is strong.

3. OfficeMax
> Industry: Specialty Retail Stores
> % Change In The Last Year: -3.9%
> % Change Since First Year Of Rating: -2.6%
> % Change of Industry In The Past Year: +1.3%

OfficeMax has the lowest score in the specialty retail category, at 74.  The company underwent a 3.9% decrease in customer satisfaction since 2009, the greatest in this category. OfficeMax competes with much larger chain Staples and Office Depot. The difference in customer satisfaction between OfficeMax and its two rivals is significant. Both Office Depot and Staples have scores of 81, and the industry in general has a score of 78. OfficeMax also has to compete against big box retailers Sam’s Club and Costco, which have successfully entered the small business supply market. The company cannot afford to lag behind its larger competitors which have stronger supply chains, marketing operations, and probably inventory availability, all of which almost certainly affect consumer impressions.

2. CVS Caremark
> Industry: Health & Personal Care Stores
> % Change In The Last Year: -3.9%
> % Change Since First Year Of Rating: 0.0%
> % Change of Industry In The Past Year: -1.3%

CVS is one of the largest retailers in the United States, with revenue topping $100 billion. The company operates more than 7,000 retail drugstores in 41 states and 569 health care clinics in 25 states. CVS currently has the lowest rating among Health & Personal Care Stores, at 74, which is a 3.9% decrease from 2009. Industry customer satisfaction among CVS and its peers dropped 1.3% to a grade of 77. The highest scoring chain in this category is Walgreens, at 77, which means the spread in customer satisfaction is relatively small and consumer perceptions of the entire industry are relatively low. Pharmacies operate on tight profit margins and, with the exception of the pharmacists themselves, workers are often paid little more than the minimum wage. The other thing that tends to work against drug store chains is the rapidly changing landscape in the health care industry, which has confused consumers, and in some cases has raised the cost of health care.

1. Priceline
> Industry: Internet Travel
> % Change In The Last Year: -3.9%
> % Change Since First Year Of Rating: +10.6%
> % Change of Industry In The Past Year: +1.3%

Priceline currently has the lowest rating among Internet travel companies. From 2009 to 2010, customer satisfaction with the online travel industry rose 1.3% to 78. Priceline’s score dropped 3.9% to 73, the greatest decrease within the industry. This gave it the lowest score in the group. Priceline has been a darling of Wall Street, and its price has risen from a 52-week low of $173 to its current level of $460. Priceline has begun to suffer from the fracturing of the online travel industry as carriers work to sell more tickets directly from their own sites. The other insurmountable factor for all travel e-commerce sites is that consumers cannot differentiate between the service given by sites like Priceline and the service given by the airlines themselves. The airline industry has notoriously poor customer satisfaction, and the blurring of these lines tends to harm the online independent middleman.

-Douglas A. McIntyre