It's always important to know how satisfied customers are with a company. This can sometimes indicate future trends for a retailer. It could also be an early clue that the company might not have its priorities straight. Even if a retailer is delivering on the top and bottom lines, once it loses the customer's trust, then it's difficult to regain it.
The following information is based on the American Customer Satisfaction Index, or ACSI. This doesn't just relate to customer service (how a customer is treated), but the perceived quality and value of products, customer complaints, and customer loyalty.
According to the ACSI, customer satisfaction in retail improved 1.6% in 2013 versus 2012. However, not all retailers have contributed to the gain. Some of the names below might even surprise you.
The biggest surprise
Macy's (NYSE:M) isn't the bottom scorer on the list, but its 76 out of 100 ACSI score isn't impressive, especially since it scored a 78 in 2012. With its omnichannel integration, which caters to the company's customers for more seamless shopping experiences across brick-and-mortar, online, and mobile, it's somewhat expected that Macy's would deliver a quality customer satisfaction score. On the other hand, this score is based on 11,531 phone and email interviews, and no one knows what all these customers experienced when shopping at Macy's. All we know is that Macy's needs to improve in this area.
Fortunately, subpar customer satisfaction didn't impact holiday sales, which saw a comps (same-store sales) increase of 3% year over year. Looking at the big picture, Macy's has delivered top-line revenue growth of 17.41% over the past five years. This isn't astronomical, but Macy's is only trading at 12 times forward earnings and currently offers a 1.7% dividend yield. In other words, everything seems to be OK with Macy's at the moment. Hopefully, a weakening customer satisfaction score won't change that.
A definitive trend
Three other retailers scored around a 76 for customer satisfcation in 2013. All three are found in the same category: drugstores. Walgreen (NASDAQ:WBA) and CVS (NYSE:CVS) scored a 76, while Rite Aid (NYSE:RAD) scored a 74.
Walgreen has seen its top line improve 17.68% over the past five years. It also now has 90 million customers enrolled in its loyalty program. Furthermore, it's trading at just 17 times forward earnings and offers a 1.9% dividend yield. On top of that, CVS will stop selling tobacco products in October, which will lead to an estimated $2 billion loss in sales. We'll see how long that initiative lasts, but as long as it's in place, Walgreen should see an influx of new customers.
Rite Aid doesn't have as many locations as Walgreen. Therefore, it won't benefit as much from CVS' decision to stop selling tobacco. On the other hand, Rite Aid is converting approximately 25% of its stores to Wellness Stores (expanded offering of clinical pharmacy services and health and wellness products), which is expected to improve customer engagement as well as customer service.
CVS has grown its top line 35.91% over the past five years. It's currently trading at 15 times forward earnings and offers a 1.5% dividend yield. Rite Aid, on the other hand, has suffered a 3.14% decline over the same time frame. On top of that, Rite-Aid is trading at a more expensive 20 times forward earnings and doesn't offer a dividend.
Rite Aid is a favorite among momentum traders, primarily because it has delivered a 168.5% net-income gain over the past five years. This could be a sustainable turnaround, but risks are still high without top-line growth. Foolish investors may prefer to stick with proven winners like Walgreen and CVS, especially Walgreen considering CVS' decision to stop selling tobacco in October.
The retailer with the lowest customer service score might not come as a surprise to you.
The big cheese
Wal-Mart Stores (NYSE:WMT) scores a 72. Despite this negative score, Wal-Mart has managed to grow its top line 18.48% over the past five years. It's currently trading at just 13 times forward earnings. And it offers a generous dividend yield of 2.6%.
Wal-Mart's biggest concern right now is the financial struggles of its customer base. That might be overcome with the rollout of its small-box stores to steal share from the dollar stores, but this will take time. If Wal-Mart is thinking long-term, then it must find a way to significantly improve its customer satisfaction, which begins with its employees.
The Foolish takeaway
Despite these low customer satisfaction scores, all five of the aforementioned companies have future potential. In regards to the most potential, it might be Walgreen, simply because it could benefit immensely from the loss of approximately $2 billion in sales for CVS. Walgreen should certainly get piece of that. Please do your own research prior to making any investment decisions.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends CVS Caremark. 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.