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The No. 1 Factor Americans Use to Decide Where to Shop

By Daniel B. Kline - Jun 20, 2015 at 10:30AM

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It's not what you think it is.

Americans like to shop. 

In fact, the United States retail market will approach $5 trillion in 2015, according to eMarketer. That's a 4% increase from its estimate for where 2014 finished, and a big jump over the $4.53 trillion in sales that retailers racked up in 2013. 

Forget the recession. Forget concerns over gas prices or the housing market. Americans are consuming at astounding rates -- but how we decide where to shop may surprise you.

Why are Americans shopping where they shop?
Though the success of low-priced retailers like Wal-Mart ( WMT 0.92% ) and various dollar stores would suggest that value determines where Americans shop, it's not just price driving those chains. Instead, the 2014 American Consumer Satisfaction Index Retail Report showed that it's actually where the stores are and when they are open that consumers rank as the most important factors:

Customer experience benchmarks for the department and discount store industry show that customers give the highest rating to the convenience of store locations and hours of operation (86).

The second biggest factor -- frequency of sales and promotions -- shows that price does still impact behavior in a major way, but the way the survey asked the questions muddies the waters. A store can have everyday low prices, but run very few sales and still be attractive. Wal-Mart is the leading retailer by sales and it has low prices more by policy than through specials (though it does run promotions). The chain also offers expansive hours with more locations than any comparable chain.

As you will see below, Wal-Mart does not rank well on the ACSI survey, but consumers clearly still shop there even if they don't care for the experience. Attribute that to a mix of convenience and value offered.

Since consumers want convenience and good prices, they may pick a store they like less because it's easier to get to and offers better deals. Consumers, for example, may choose a more convenient Wal-Mart over a farther-away Target ( TGT 0.66% ), even though the former ranks at the bottom of the ACSI retail rankings (68) while the latter scores an 80.

If a company had to choose, it's actually probably better off being conveniently located and open more often than it is offering good service or a great selection of name brands.

Source: ACSI.

Online may win anyway
Location and hours may be driving factors for customers when choosing a retail store, but that still may be a losing battle for physical retailers. Wal-Mart has a lot of locations, and some are even open 24 hours a day, seven days a week. That could be very convenient, but it's still hard to compete with a company like Amazon ( AMZN -1.96% ), which is always open and always easy to access -- without even getting in your car.

Source: ACSI.

That may explain why online retailers outrank their physical counterparts in the ACSI survey. Amazon, which tops the rankings with an 82 (a 5.1% increase over 2013), may not score as high as top bricks-and-mortar retailer Nordstrom (86), but it outranks all of the other companies in the 2014 department and discount store index. 

Online consumers rank efficient checkout as their top concern, giving it an 87. They clearly value sites that are easy to navigate, where pages load quickly, and retailers offer a strong variety of merchandise with useful product images.

The convenience issue alone may make it very hard for traditional retailers to compete using only physical stores. It's possible to increase your hours and add locations, but you can't beat the Internet on those counts.

Source: ACSI.

Physical retailers need to do digital right
What's very clear from the ACSI rankings is that the top online retailers -- specifically Amazon -- appeal to consumers because they are always open and offer convenient shopping. The big retail brands can duplicate that, but to do so, they need to improve their websites (something Target and Wal-Mart have committed significant money to in 2015). 

That presents a major challenge, because one key advantage existing online stores have is that they already have credit card information on file. That's a very important barrier to competition because it's simply easier to check out at a store when you don't need to pull out a credit card.

To fight that, retailers need to get clever. They can incentivize digital sign-ups in their physical stores, or integrate Apple Pay, PayPal, and as many other payment methods as possible at their stores. It's possible, but it's clear that a pure physical play is destined to lose, while being a brand that serves both in-person and online customers requires making your website equal to the top pure Internet retailers.

That's possible, but it's a major challenge. According to the evidence, Americans pick where to shop based largely on convenience and value, which could make it hard for physical stores to compete, especially as online stores improve delivery options. However you look at it, winning customers is all about delivering the easiest, most friction-free experience possible.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,369.98 (-1.96%) $-67.38
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$136.72 (0.92%) $1.25
Target Corporation Stock Quote
Target Corporation
TGT
$247.13 (0.66%) $1.63

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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