retail news in context, analysis with attitude

The University of Michigan’s annual American Customer Satisfaction Index (ACSI) is being released today, and it will show that “customer satisfaction with the goods and services that Americans buy reached an all-time high in the fourth quarter of 2006,” and that “satisfied consumers will continue to prop up the economy, driving consumer spending growth of between 3.5% and 4.1% for the first quarter of 2007.”

According to a statement released by the university, the index has climbed “to 74.9 on the ACSI’s 100-point scale, up 0.7 percent from the previous quarter, and up almost two percent from the previous year. This is the highest score the Index has had since its first measure in 1994 (74.8).”

In retail specific segments examined by the study:

• “Supermarkets improve slightly, up 1 percent in aggregate to 75. Publix reaches a new high, improving 2.5 percent to 83. The company is partly employee-owned and has a reputation for good customer service and a family-friendly atmosphere. Supervalu drops 4 percent to 74 as it absorbs some Albertson’s stores in an acquisition. Albertson’s had been a poor performer before being acquired, and its less satisfied customers surely have impacted Supervalu’s score.”

• “The drug store industry is up 2.6 percent from its first measurement last year. CVS makes a big jump of 5.4 percent to 78, and Rite Aid is up 4.2 percent to 75. Both companies have been adding more outlets, defying the convention that mergers compromise customer service. CVS has more locations nationwide than any other company in the industry. New computer technologies help drug stores keep highly interconnected and allowing prescriptions to be refilled at any store. More locations mean greater convenience.”

• “The specialty retail stores industry improves 1.4 percent to 75. Leading the industry once again is Costco, which rose 2.5 percent to 81, its highest score ever and one of the highest in all of ACSI. The biggest gain in the retail trade goes to Best Buy. The company’s score rises 7 percent to 76. Top-line products and extensive service offerings are helping the retailer to improve customer satisfaction, even while it has added many stores over the last year.”

• “E-commerce improves for the second year in a row, and at 80 is less than a point off of its all-time high (80.8 in 2003). The e-commerce sector includes e-retail, online auctions, online brokerages, and online travel. Online retail is one of the highest-scoring industries of ACSI, and this quarter improves 2.5 percent to 83. Barnesandnoble.com (+1% to 88) continues to lead the industry, followed closely by Amazon.com (87).”

According to the statement, “ACSI has consistently predicted future consumer spending and is an indicator of financial performance at both the company and industry level.”
KC's View:
Maybe. But we’re not completely buying into these results….mostly because we think that the country’s economy is built on a house of cards that might not withstand a serious attack, and therefore customer satisfaction today doesn’t necessarily mean much in term of short-term or long-term prognostication. We heard someone on one of the Sunday morning news programs refer to an “investment bubble,” that there are concerns even among those who are doing well that things are almost too good to be true.

People may be satisfied with the customer experiences they are having on a day to day basis, but that doesn’t mean that it predicts anything. Not at this point in history.

Sometimes, consumer satisfaction is a kind of self-fulfilling prophecy. They want things to be good, so they behave as if things are good…but ring up substantial debt in the process.

And sometimes, things just change. As an example, there was a piece in the Wall Street Journal over the weekend that read, in part:

“In a reversal that strikes at a cornerstone of pro-sports finances -- and of the way corporate America entertains -- teams around the country are ripping out luxury suites. These perches have been used to justify billions of dollars in stadium construction over the past two decades. But in many cities, they are losing luster with surprising speed, partly the result of factors that couldn't have predicted five or 10 years ago, from changes in tax laws to scandal-driven reforms on corporate entertaining.”

So much for predictions.

Ironically, the University of Michigan’s monthly consumer sentiment index also has been released, showing a decline to 93.3 from 96.9 in January, attributed to "concerns about potential increases in unemployment, especially among lower income households and among residents of the Midwest," according to a statement.

The survey's gauge of current economic conditions dipped to 108.3 in February after 111.3 in January, while its measure of consumer expectations slipped to 83.7 from 87.6 in January.

No surprise here. People are worried about the war…about the conduct and future of government…global warming…terrorism…food safety…health care issues…their own jobs…and about corporate behavior and executive compensation issues. And that’s just a partial list.

Don’t mean to sound like Chicken Little, but there are too many ways in which things can go wrong, and too many ways in which consumer confidence can be immediately and profoundly shaken, for us to be convinced that the ACSI numbers are much more than illusory when it comes to their predictive nature. We hope not. But we are unconvinced.