Retailers Kept Consumers Happy,
According to a Satisfaction Survey

Attention Kmart shoppers. Do you know something that Kmart Corp.'s creditors don't?

Customer satisfaction at Kmart leapt in 2001 from a year earlier, even as the company was barreling toward a bankruptcy filing, according to a quarterly University of Michigan survey of consumer attitudes about a wide variety of companies and brands.

Kmart's improvement came as part of an overall increase in satisfaction for the retail sector in 2001, according to the university. And while Kmart still lags behind many other retailers in making its BlueLight shoppers happy, the apparent gain could mark a dash of hopeful news for the company, which doesn't expect to emerge from bankruptcy proceedings until 2003. It filed for court protection from creditors in January after a dismal Christmas selling season.

Customer satisfaction appeared to be rising throughout the economy during the final months of the year, which the University of Michigan says should help to underpin consumer spending in the months ahead. Its overall index of satisfaction rose for the first time in 15 months, to its highest level since the final months of 2000. Much of that improvement was the result of heavy price cutting, which bolsters customer satisfaction because it leads consumers to feel that they are getting more for their money.

"There is a much stronger emphasis on value shopping," says Tom Williams, a spokesman for Wal-Mart Stores Inc., which saw its score at Sam's Club stores rise 5.4% last year.

The satisfaction reading comes from the American Customer Satisfaction Index, which is based on a quarterly survey by the National Quality Research Center at the University of Michigan business school, in partnership with the American Society for Quality, a professional group in Milwaukee, and Foresee Results, an Internet tracking firm. The index, scheduled to be released Tuesday, focuses on different sectors of the economy each quarter, ranging from autos to household appliances to government services to grocery items. This time, it covered retail, financial-services companies and e-commerce.

Kmart's score rose to a reading of 74 during the fourth quarter from 67 a year earlier, a 10% increase that was especially surprising to many in the industry who noted Kmart's problems managing suppliers, keeping shelves stocked and keeping employee morale from faltering. "They violated every rule in the retail book," says Britt Beemer, of America's Research Group, which tracks retail-sector trends.

Price cutting clearly appears to help explain part of Kmart's increase. It launched a program called BlueLight Always in which it cut prices on 38,000 items in September. Company spokesmen say there is more to it than that. Though Kmart has struggled to keep its shelves stocked with merchandise, Jack Ferry, a company spokesman, says its in-stock levels have risen from 73% in the middle of 2000, when Charles C. Conaway was named chief executive officer, to 86% by the end of December. That was still below the industry average, but an improvement nonetheless. Furthermore, it has instituted a new program to track customer satisfaction and it has installed self-service checkout scanners at 1,300 stores.

"When companies are facing a near-death situation, they get desperate and they really try harder," says Claes Fornell, a professor at the business school and director of the research center. "At Kmart, it might be too little, too late." Despite the apparent improvement, sales in December were down 1% from a year earlier in comparable Kmart stores.

While it didn't show up for Kmart, Mr. Fornell says there is a tight link between customer satisfaction and consumer spending. As consumers perceive greater value and satisfaction with what they buy, they are likely to spend more money, he says. Because the overall, economywide index improved, this suggests that spending might prove to be stronger than expected early this year, Mr. Fornell says. Since the university began producing the quarterly satisfaction index in 1995, it has risen nine times, prior to this quarter, and on six of those occasions, consumer spending has accelerated in the following three months.

Despite that performance, Wall Street economists tend to disregard this index as an economic indicator. They prefer to track more traditional gauges, like income growth, consumer confidence and credit growth, to try to get a read on the outlook for spending. Mr. Fornell acknowledges that the index might be a better indicator during good times -- when consumers can afford to worry about more ethereal issues like their satisfaction -- than it is during recessions, when worries about jobs and income prevail.

Indeed, it will be a challenge to keep up the torrid pace of spending that occurred in the final months of 2001, because spending rose at a 5.4% annual rate. Yet retail sales actually did prove to be stronger than expected in January. According to the Commerce Department, sales rose by 1.2%, not counting automobile sales, which slipped with the expiration of heavy discounting programs in October, November and December.

In other findings, the University of Michigan said satisfaction with e-commerce was lower than with the traditional retail and finance sectors, with poor showings from Internet brokerage firms and Web portals dragging down online results. However, online retailers outshone their bricks-and-mortar counterparts, thanks in large part to high marks from merchants like Amazon.com Inc. and Barnes & Noble.com Inc. Amazon's score, at 84, was unchanged from the previous year and was the highest of any single company in the latest quarterly survey.

Among the best known Internet merchants, Internet florist 1-800-Flowers.com Inc. made the biggest improvement from last year, rising 10% to a score of 76. The company's chief executive, Jim McCann, noted that 1-800-Flowers.com last year set up a system of checks to evaluate its customer service, including the hiring of a third-party service that rates the company's delivery and the quality of flowers.

Satisfaction with online brokerage firms declined. The weak stock market has hurt many investors' portfolios, which may affect perceptions of their online brokers, says Shalin Patel, an analyst at Gomez Inc., a Waltham, Mass., Internet research firm. Some online brokerage firms have also angered consumers by imposing new fees on lightly traded accounts. These effects are somewhat offset by the fact that response times on telephone support lines are improving now that the heady days of day-trading are over, Mr. Patel said.

Microsoft Corp.'s MSN site saw its score drop 5.6%. Bob Visse, director of marketing at MSN, said the site introduced a new design in late October, but the company's own market research indicated satisfaction with the site increased following the changes.

In the world of finance, Bank One Corp. saw its score drop 5.7%, probably reflecting a wide-ranging restructuring of its credit-card and retail-banking businesses during the past two years. Thomas Kelly, a company spokesman, says the company was doing a poor job of customer service up to 1999, but that its own internal numbers show that has begun to turn around. "We have made progress in our customer service and it is now good," he says. "We have more work to do to make it great."

-- Nick Wingfield contributed to this article.

Write to Jon E. Hilsenrath at jon.hilsenrath@wsj.com

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Updated February 19, 2002 12:01 a.m. EST