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Economy
Winter of Consumer Discontent Could Worsen
Slowdown
---
Customer Satisfaction Falls,
Notably in
Retailing;
Will Spending Follow?
By Patrick Barta
02/20/2001
The Wall Street Journal
Page
A2
(Copyright (c) 2001, Dow Jones & Company, Inc.)
For months, economists have suspected that declining
consumer confidence has exacerbated the economic slowdown. But
now, some economists say there could be another reason why
consumers are growing more finicky: deteriorating service.
After rising for much of last year, the University of
Michigan Business School's quarterly index of customer
satisfaction turned down in the fourth quarter, to a score of
72.6 (out of a possible score of 100) from 72.9 in the third
quarter. That means consumers are less happy with the goods
and services they are buying; some fear this could lead to
further declines in spending if it continues.
Not coincidentally, the weakness was most apparent in the
retail sector, where the average satisfaction score declined
0.5% to 72.9 from 73.3 a year earlier, led by drops in
satisfaction with companies like Costco Wholesale Corp., May
Department Stores Co., Publix Super Markets Inc., Kroger Co.
and Albertson's Inc. Although some of those stores have
problems related to the acquisitions of competitors, the
biggest problem appears to be one of staffing: With a tight
labor market, high turnover and continued pressure to keep
costs low -- which forces companies to keep a relatively low
number of salespeople per customer -- customer service just
hasn't been good.
How bad are the customer-satisfaction numbers? They're not
terrible, but they're worse than many would expect: Department
stores, with a group score of 72, were on par with the U.S.
Postal Service; fast-food restaurants and banks came in two
points lower. Meanwhile, the entire retail sector fared worse
than tobacco companies, which scored 78 when they were last
measured in the third quarter, presumably because retail
companies are having such a hard time retaining good staff.
Retailers also fared worse than their Internet counterparts --
including Amazon.com Inc. and Buy.com Inc. -- which
collectively scored 78 when measured in the third quarter.
The numbers come from the American Customer
Satisfaction Index , which is based on a
quarterly survey by the National Quality Research Center at
the Michigan business school, in partnership with the American
Society for Quality, a professional group in Milwaukee, and
CFI Group, an Ann Arbor, Mich., consulting firm. The index,
scheduled to be released today, focuses on specific sectors of
the economy each quarter; in previous quarters, the center
measured Internet companies, durable goods, and government
services, while this time, it covered retail and
financial-services companies. The survey's overall index
number represents a running tally of all of the sectors
covered over the year. Comparisons between sectors are
possible because the index defines "satisfaction" very
broadly, measuring a number of factors for every company
including customer service, perceived quality, perceived
value, customer expectations and customer retention.
The biggest loser this time by far was McDonald's Corp.,
the national icon, whose score fell to 59 from 61. That is
close to the worst rating of any private-sector company since
the survey began in 1994 (that distinction goes to Northwest
Airlines, which logged a 53 in 1999, although it has since
improved to 62). The Internal Revenue Service scored 56 when
it was last measured in the third quarter of 2000.
McDonald's has lagged behind most companies for years, says
Claes Fornell, a professor at the business school and head of
the Center that produces the index. Among the most common
complaints: poor service, "sloppy burgers," and pictures in
advertisements that don't resemble the real products.
This year, analysts say, there's a new problem: kinks in
the company's new made-to-order cooking systems, which were
rolled out in 1999 to eliminate premade food that sits under
heat lamps. The "Made For You" system appears to have improved
food quality but also appears to take longer. "People at the
end of the day go to McDonald's more for speed and convenience
than for quality," says Mitchell Speiser, a Lehman Brothers
restaurant analyst.
In a prepared statement, a McDonald's spokeswoman says the
index's results "don't track with the facts about our
business," adding that McDonald's sales in the U.S. increased
last year, "which is strong evidence of customer
satisfaction."
To be sure, the overall satisfaction results for the
quarter weren't disastrous and the total decline was only
modest. But the fact that the overall trend is negative is
"troubling in the context of a slowing economy," Mr. Fornell
says. "To get the economy going again, we need more consumer
spending, and it's going to be hard to get that with such high
household debt and low customer satisfaction."
The best news was the banking sector, which, despite having
a relatively low score of 70, appears to be recovering after a
steady decline in the late 1990s to a low of 68 in 1999. Back
then, mergers took up much of the banks' time, and customers
complained about ATMs that ran out of money and changes in
transaction forms that confused them. Now, customers appear to
be getting used to the new forms and ATM service has improved,
Mr. Fornell says, and some banks have altered their incentive
programs to reward tellers for promoting customer service.
Bank One Corp., whose score rose to 70 from 66, has revised
its policies for tellers to allow them to make more decisions
on the spot, like waiving a bounced-check fee for an otherwise
good customer.
The notable exception was First Union Corp., whose score
dropped to 66 from 68. First Union says its surveys show
satisfaction has been improving for the past seven quarters
and it has taken additional steps, including changing its
tellers' incentive structures to reward retaining customers
and providing good service, as opposed to simply getting new
customers.
In the department-store category, Costco led its group for
the second straight year, although its score declined to 77
from 79. The biggest surprise in the group was Dillard's Inc.,
which overcame falling sales in the past year to see its score
jump to 72 from 68 a year earlier. Some analysts speculated
that the increase could be simply the result of less-crowded
stores. A company spokesman says Dillard's has been marking
down prices earlier each season and has started relying more
on house brands rather than big-name brands from outside
vendors. That allows the company to control its inventory
better and get popular items more quickly.
Nordstrom Inc. was also interesting: Once the highest-rated
of all department stores, its scores have dropped steadily in
the past five years, although the company was unchanged at 76
in the quarter, and it remains the second-highest-rated store.
Even so, the fact that the company isn't returning to its
former glory suggests it is "squandering the benefit it once
had," Mr. Fornell says. One problem, he says, might simply be
that consumers' expectations are too high for the kind of
service the company now provides. Paula Weigand, a spokeswoman
for Nordstrom, says the company has been hearing that it isn't
providing the right mix of merchandise, so it is readjusting
its inventories on a store-by-store basis.
In the supermarket category, most of the problems appear to
be related to acquisitions, with the two worst performers,
Albertson's and Kroger, still recovering from deals in 1999.
Albertson's, for example, discontinued popular discount cards
used by customers at some of the stores it picked up in an
acquisition in 1999. Acquisitions can also result in changes
in merchandise selection. Since people usually visit the same
store regularly, "when you change something -- even if it's an
improvement -- you can create dissatisfaction, because you're
changing the routine," says Ed Comeau, a food-retailing
analyst at Credit Suisse First Boston in New York. Gary
Rhodes, a Kroger spokesman, says he doesn't know of anything
that would account for the drop in the past year, "but there
is always room to improve." Albertson's says its surveys show
satisfaction is improving.
---
Journal Link: See annual index results of the retail and
financial-services industries since 1994, and read comments on
the latest survey from its director, in the online Journal at
WSJ.com/JournalLinks.
--- American Customer Satisfaction Index
The University of Michigan Business School's National Quality
Research Center annually surveys customers of about 200 companies and
30 government agencies, but each quarter it updates selected
industries. Here are the index scores, out of a possible 100, for the
fourth quarter of 2000:
2000 % Change
Group/Manufacturer Score from 1999
Retail 72.9 -0.5%
Department and Discount Stores
Costco 77 -2.5%
Nordstrom 76 +0.0
J.C. Penney 74 -1.3
Target (discount) 73 -1.4
Sears 73 +2.8
Wal-Mart (department) 73 +1.4
Target (department) 72 +0.0
Dillard's 72 +5.9
May Stores 72 -2.7
AAFES 70 +0.0
All Others 70 -4.1
Federated 69 +1.5
Kmart 67 +0.0
Gas-service stations
RD Shell 77 +2.7%
BP Amoco 76 +0.0
Chevron 76 +0.0
All Others 75 -1.3
Exxon Mobil 75 -2.6
Texaco 75 +0.0
Restaurants-fastfood-pizza-carry out
Papa John's Int'l 77 +1.3%
All Others 72 -2.7
Pizza Hut 70 +2.9
Wendy's Int'l 70 -1.4
Domino's Pizza 69 +3.0%
Little Caesar Enterprises 69 N.A.
Burger King 67 +1.5
KFC 65 +1.6
Taco Bell 63 -1.6
McDonald's 59 -3.3
Supermarkets
PUBLIX Super Markets 77 -6.1%
Safeway 76 +5.6
Supervalu 75 +0.0
All Others 74 +4.2
Wal-Mart (Sam's Club) 74 -5.1
Winn-Dixie Stores 74 +4.2
Food Lion 73 +2.8
The Kroger Co. 71 -4.1
Albertson's 70 -4.1
Financial Services 74.4 +0.7
Banks
All Others 72 +2.9%
Bank One 70 +6.1
First Union 66 -2.9
PNC Financial Svcs. 67 N.A.
Wells Fargo 67 +3.1
Bank of America 63 +3.3
Life Insurance
Northwestern Mutual 80 +1.3%
All Others 76 -2.6
New York Life 73 -6.4
Metropolitan Life 72 -1.4
Prudential 71 +2.9
Personal Property Insurance
All Others 79 -1.3%
State Farm Insurance 79 +1.3
Allstate 75 +2.7
Farmers Group 73 -2.7
The American Customer Satisfaction Index is produced through a
partnership of the University of Michigan Business School, the
American Society for Quality and the CFI Group. |
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