Brick and Mortar Stores Aren’t Dead Yet -- Customer Satisfaction Higher Than Online

The holiday season was a good one for brick and mortar stores -- at least as far keeping customers happy.

Feb 25, 2014 at 7:45AM

Customers are happier with traditional brick and mortar retail stores, and are showing increased dissatisfaction with Internet retailers.

According to a report released on Feb. 19 by the American Customer Satisfaction Index, the retail sector gained 1.7% to an ACSI benchmark of 77.9. It was boosted by higher customer satisfaction with specialty retail stores, supermarkets, drug stores, and gasoline service stations. A fourth traditional retail industry -- department and discount stores -- shows no change in customer satisfaction compared with a year ago.

Internet retailers fell in the ratings, however. ACSI Chairman Claes Fornell said in a press release that the Internet retailers were done in by their own success.

"A spate of last-minute holiday purchases online, combined with inclement weather, left some buyers disgruntled by delayed shipments," said Fornell. "That's the likely reason for Internet retail getting its lowest customer satisfaction benchmark in more than a decade. Nevertheless, diminished foot traffic at malls—along with a surge in shopping via mobile phones and tablets—indicates that consumers are increasingly embracing the advantages of online commerce."

Higher-end, happier customer?
Upscale Nordstrom  (NYSE:JWN) got the highest mark in the survey with a score of 83, while discounter Wal-Mart (NYSE:JWN) was the lowest at 71. In general, though, the chains selling higher-priced merchandise do not necessarily score higher customer satisfaction marks than those selling discounted goods.

"Discount chains Kohl's (NYSE:KSS) and Dollar General (NYSE:DG) are both above average for customer satisfaction and are among the industry's top four, while Macy's (NYSE:M), a traditional department store, comes in at the low end," said ACSI Director David VanAmburg. 

Target (NYSE: TGT), which was the victim of a credit card fraud scandal where the card numbers of 40 million customers were compromised, saw its ACSI benchmark fall the most of any company with a 5% drop to 77.

Busy Internet leads to angrier customers

The report showed that customers were less happy with Internet retailers, with the overall category dropping 4.9% to an ACSI benchmark of 78; this was the lowest score since 2001. Those results, however, are somewhat misleading as the major Internet players scored higher than average. The category's numbers were brought down overall by smaller sites, including the websites of brick-and-mortar retailers.

Amazon.com (NASDAQ:AMZN), which had the highest rating at 88 (an improvement of 4%), scored that rating in a period where  net sales increased 20% to $25.6 billion in the fourth quarter, compared with $21.3 billion in fourth quarter 2012.

eBay (NASDAQ:EBAY) dropped 4%, but still scored an 80, while Overstock.com dropped 2% to 79. Netflix (NASDAQ:NFLX) might be the big winner as it gained 5% to score a 79; this was a major improvement, but still well below its score of 87, which plummeted after the company's attempt to change its pricing structure in 2011.

Online retailers need to satisfy customers
Based on the survey results, online retailers appear to win more customers when they have a higher level of customer satisfaction. That makes sense, as it seems logical that customers would not want to give their credit card information to an online store that did not offer a satisfying (and trustworthy) experience. In the digital world, it's easier to hop to another site than it is to go to a different physical store in the real world.

Customers in the physical world can buy a can of soda from Wal-Mart because it's cheapest, or spend more at a neighborhood convenience store because of convenience. Even if that local store is in a bad neighborhood, has a surly clerk, and only takes cash, you still might buy the soda because you're thirsty and it's just around the corner.

In the online world, where merchandise is bought a little bit more on faith, it makes sense for shoppers to trust the most established sites. According to ACSI, "shoppers find the checkout and payment processes of online retailers (ACSI benchmark of 90) to be vastly superior to that of traditional department and discount stores (72) or specialty retailers (77.)"

Who will win?
An online store that offers a bad customer experience may never see that customer again. A physical store that offers a mediocre experience, but is on the customer's way home from work, might get another shot. With the top online retailers leading their physical counterparts in customer satisfaction (despite the dip caused by increased holiday business), it seems that at some point the trust factor will switch to the top online retailers.

If Amazon scores an 88 for customer satisfaction and Wal-Mart scores a 71, might there be enough of a gap that Amazon has overcome the fact that it has no physical store and can't offer immediate satisfaction? Judging by Wal-Mart's huge sales numbers, this may not be happening yet. Physical retailers are clearly losing business to online competitors, however. If online retailers continually satisfy their customers at higher levels than physical stores, it may be only a matter of time before physical stores start to suffer and even disappear.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, eBay, and Netflix. The Motley Fool owns shares of Amazon.com, eBay, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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