Customer satisfaction with mass market retail chains, including drug stores, is down despite a continued improvement in retail sales.

customer satisfaction, retail sales, American Customer Satisfaction Index, ACSI, mass market retail, drug stores, retail trade, consumer spending, Commerce Department, retail trade sales, retail customer satisfaction, Claes Fornell, University of Michigan's Ross School of Business, The Satisfied Customer, consumer demand, customer service, Deloitte Consumer Spending Index, consumer buying power, consumer cash flow, Carl Steidtmann, Alison Paul, retail sector, Russell Redman

Other Services
Reprints / E-Prints
Submit News
White Papers

Retail News Breaks Archives

Retail sales up, customer satisfaction down

February 18th, 2011

NEW YORK – Customer satisfaction with mass market retail chains, including drug stores, is down despite a continued improvement in retail sales.

The American Customer Satisfaction Index (ACSI) reported this week that its national benchmark index fell 0.5% year over year to 75.3 on its 0-100 scale, the biggest drop in two years and showing no improvement since mid-2009. For the retail trade, the ACSI fell 1.6% year over year to a score of 75 in the fourth quarter. The index gauges customer evaluations of the quality of products and services available to U.S. household consumers.

Meanwhile, the Commerce Department said Tuesday that U.S. retail trade sales in January 2011 were $307.51 billion, up 0.5%  from the previous month and a gain of 8.3% from a year earlier. The month-to-month increase in January sustained an upward trend during the final quarter of 2010, which saw monthly gains in December (+0.7%), November (+0.9%) and October (+1.3%).

Retail sectors seeing a month-to-month sales increase in January included health and personal care stores (including drug stores) at 0.5%, grocery stores at 1.4%, general merchandise stores at 0.8%, department stores at 0.5%, and electronics and appliance stores at 0.3%, according to the Commerce Department's advance figures.

In the retail customer satisfaction, leading the ACSI decline in the 2010 fourth quarter were gas stations (down 7.9% to a score of 70), followed by supermarkets (down 1.3% to 75) and drug/health/personal care stores (down 1.3% to 77). On the upside in satisfaction were department and discount stores (increase of 1.3% to 76) and specialty retailers (increase of 1.3% to 78). Internet retailers also saw a decrease in the index falling 3.6% to a score of 80.

"Even though the economic recovery has gained a bit more momentum as of late, it remains sluggish," stated Claes Fornell, founder of the ACSI, developed at the University of Michigan's Ross School of Business, and author of The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference. "With low job creation and deteriorating customer satisfaction, as tracked by the ACSI, the uncertainty of what will happen to consumer demand is not going away."

A 20% hike in fuel prices over the past year deflated customer satisfaction at gas stations, while higher prices on food and other essential items also dampened satisfaction at supermarkets and drug/health/personal care stores, according to ACSI. Aggressive discounting kept the department/discount stores and specialty retailers categories trending upward for a third straight year, ACSI said.

Smaller drug store chains led the health and personal care store category in customer satisfaction in the fourth quarter, up 3% to an ACSI score of 81. Of the three largest drug chains, Walgreen remains in front, unchanged at 77, followed by Rite Aid (-1% to a score of 75) and CVS Caremark (-4% to 74).

With an ACSI score of 84, Publix led all food and drug retailers despite a 2% drop in its rating from a year ago, and the chain has led the supermarket category every year since 1994. Whole Foods (+4% to 79) was next among large supermarket chains, followed Kroger (unchanged at 78), Winn-Dixie (+2.7% to 76), Safeway (+3% to 74), Supervalu (-4% to 74) and Wal-Mart, which was unchanged at 71 for the grocery portion of its business.

In the discounter segment, Target's ACSI score slipped 3% to 78, while customer satisfaction in Wal-Mart's discount store business improved 3% to 73.

"While supermarket chains like Publix thrive on the strength of their customer service, Wal-Mart continues to be a place where people shop because of price," commented Fornell. "Service has a strong impact on customer satisfaction, but low prices coupled with low quality do not."

One reason for the diverging directions of retail customer satisfaction and retail spending may be a dilution in consumer buying power.

The Deloitte Consumer Spending Index for January, announced earlier this week, sank to its lowest level since August 2009. The index aims to track consumer cash flow as an indicator of future consumer spending. Comprising four components — tax burden, initial unemployment claims, real wages and real home prices — the index fell to 3.82%, from an upwardly revised gain of 4% a month ago, Deloitte said.

"Growing weakness in real wages and a tax rate that is creeping higher offset small improvements in initial jobless claims during the month of January," stated Carl Steidtmann, Deloitte's chief economist and the author of the monthly index. "Although real consumer spending has been rising at a healthy pace, inflationary pressures may begin to crimp Americans' buying power in the months ahead, particularly if food and energy prices continue to climb."

Deloitte noted that initial unemployment claims have improved but at a slower pace than expected. And with the tax benefits of the 2009 stimulus ebbing, the tax burden is pushing slowly higher and is now significantly above levels of a year ago — a trend not likely to be changed by the extension of former President George W. Bush's 2001 tax cuts, Deloitte said. Also, real housing prices are declining once again as more supply comes on the market — due partly to foreclosures — and in turn creates a negative wealth effect that's a drag on consumer spending.

"In an environment where growth may continue at a sluggish pace, retailers should consider talent management strategies that improve the interactions with their core customers," according to Alison Paul, vice chairman and retail sector leader at Deloitte. "One way to do so is to attract and develop employees who reflect the retailer's target customer segments. A diverse workforce that understands different customer preferences may have the advantage in delivering the right merchandise, marketing and services that build long-term loyalty with consumers."