Perhaps more than any other company, Americans love to hate Wal-Mart Stores (NYSE:WMT). Over the years, the retail giant has garnered controversy for its labor practices, incidences of bribery abroad, and bullying small businesses.
But Wal-Mart may have a bigger problem beyond its public image. A survey by the American Customer Satisfaction Index released this month showed that Wal-Mart is the most-disliked retailer in the country with a score of 68. Nordstrom led the pack at 86, while the average for the retail industry was 77.
Not only was this the eighth year in a row that Wal-Mart ranked last among retailers, but it was also the company's worst score since 2007. Let's take a look at why Wal-Mart consistently gets a failing grade.
1. Poor customer service
While rival Amazon.com has made customer service a differentiator along with low prices, Wal-Mart seems to have put low prices above all else. The retailer has cut its total American workforce by 120,000 since the recession, and recently staff levels are so low that stores have had trouble keeping their shelves stocked.
Other complaints include the inability to find items that are in stock, long checkout lines, and unhelpful employees, which may be result of the company's low scores on employee satisfaction.
2. Its price advantage may be fading
Wal-Mart rose to dominance because of its "always low prices" promise and for years it was able to follow through on that. But with the rise of e-commerce and online competition, Wal-Mart faces a different kind of rival. It's not just Amazon that poses a threat, but companies like eBay, Groupon, and other daily deals specialists that can easily undercut it on price. Even dollar stores, which expanded during the recession, are fighting Wal-Mart for share. The question of whether to match competitor prices has been a critical one for Wal-Mart, and the decision over the holiday season may have been helpful. However, the company has also been criticized for failing to match its own online prices in its stores.
3. Inventory woes
In 2013, Wal-Mart estimated it lost $3 billion in sales due to out-of-stock merchandise. That's not just a problem for the company's bottom line; it also represented mishandled relationships with its customers. After low prices, the company seems to stake its reputation most on selling everything you could need.
This issue is probably the most correctable of Wal-Mart's customer-facing problems, but it's a consequence of its bare-bones staffing strategy, and seems to reflect its desire to cut expenses at all costs. Strangely, last year's stock-outs seemed more a product of mismanagement rather than skimping on spending as inventory actually rose faster than sales, indicating that the company stocked too many of the wrong items.
Cleanup on aisle #2
As the world's largest retailer, Wal-Mart's results may indicate that high customer satisfaction ratings aren't necessary for successful retail business, but the company wasn't always run like this. In the mid-1990's, shortly after Founder Sam Walton's death, Wal-Mart customer satisfaction ratings were actually above average for the industry, which may have something to do with Walton's attitude toward employees. Unlike the Wal-Mart of today, Walton rewarded store associates with time-and-a-half pay for working on Sundays, a profit-sharing program, and Christmas bonuses. Over the years, those perks have disappeared as management has nickel-and-dimed its employees and subsequently customers.
The surprise announcement this week that the company will be raising wages for all employees to at least $9 in April, or $1.75 above the federal minimum wage, could be a step in the right direction. The decision will affect 500,000 current staff members, and could improve the company's hiring pool by making it a more desirable place to work and increase employee morale. Some customers even cheered the move, though it may cause prices to rise slightly. The only major stakeholder group that wasn't happy included investors who sent the stock down 3%. But if happier employees lead to increased customer satisfaction, Wall Street will end up smiling in the long run.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. 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.