NCSI-UK Commentary Fourth Quarter 2011
Supermarkets, Department Stores, Electrical Retailers, Petrol Stations and E-Commerce
February 28, 2012
The National Customer Satisfaction Index (NCSI-UK) dips for the fourth quarter of 2011, falling 0.3% to 74.5 on a scale of 0 to 100. The decline is the result of weakened customer satisfaction across almost all retail sectors. Petrol stations and electrical retailers show the largest drops, while department stores and e-commerce retailers deteriorate less. Only supermarkets manage to maintain the same level of customer satisfaction as they did a year ago. Among individual retailers, there are more losers than winners: 50% declined, while 39% improved and 11% registered no change.
The Index, which applies the methodology of the American Customer Satisfaction Index (ACSI), demonstrates a strong relationship to economic growth. The 15 industries in the NCSI represent nearly half of total UK consumer spending. For the third quarter of 2011, the 0.3% improvement in NCSI corresponded to a 0.5% growth in GDP. For the final quarter of 2011, both are moving in tandem in the opposite direction with NCSI’s 0.3% drop corresponding to a 0.2% contraction in GDP for the fourth quarter – the first negative GDP growth since the fourth quarter of 2010 as the country suffered the coldest winter of the decade.
Online retailers continue to outperform the majority of traditional stores, and despite a 1.2% slip to 83, e-commerce is the highest-scoring category in the NCSI. Department stores also decline slightly, down 1.3% to 78. Electrical retailers show a bigger drop, down 2.6% to an NCSI score of 76. Rising prices have finally caught up with petrol stations, driving customer satisfaction down by 2.6% to 75. Petrol prices increased 15% in 2011; nearly triple the average increase of all retail prices. Petrol stations are now tied with supermarkets (unchanged at 75) for the lowest customer satisfaction in retail.
Despite rising prices for food and other grocery items, customer satisfaction with supermarkets is steady at an NCSI score of 75. Supermarket customer service remains lowest among all retail categories, but it is improving just enough to offset dissatisfaction with higher prices. Still, growth in the industry has been tepid over the past year as consumers rein in spending.
Waitrose leads the supermarket chains with a score of 84, despite a slight 1% decline. Asda, in second place, is steady at 79 for a third straight year. Strong customer service keeps Waitrose on top, while Asda’s low prices sustain customer satisfaction in a weakened economy. The aggregate of smaller supermarkets (including Aldi and M&S) gains 3% to 80, its highest score to date as smaller stores edge closer to Waitrose. Morrisons advances 1% to 78, well ahead of the industry average.
Sainsbury’s shows the biggest improvement among the large supermarket chains, up 3% to 75 to match the industry average. Sales also grew 5% over the holidays and helped push Sainsbury’s market share to its highest level since 2003.
By contrast, two other chains are losing ground and fall well below the average. Tesco drops 3% to 70, its lowest customer satisfaction score in five years. Holiday sales were below expectations, prompting the first profit warning in 20 years, and share price fell 30% in the three months ending January 2012 to its lowest level since 2005. Quality is lagging the industry, especially in terms of service, and Tesco’s aggressive discounting has been matched by other retailers offering higher quality and better service.
In the wake of the acquisition of Somerfield stores, the Co-operative made major gains, rising 15% between 2008 and 2010. But now The Co-operative reverses course, sliding 3% to a supermarket category low of 68 and the weakest score of any retailer tracked by NCSI. Merchandise and service quality have consistently lagged the average for supermarkets, but are unchanged from a year ago. According to its customers, value for money has declined.
Customer satisfaction with department stores drops 1.3% to an NCSI score of 78, but department stores remain the highest-scoring category among brick-and-mortar retailers. Weak economic growth continues to put pressure on stores to offer aggressive price promotions without compromising quality and customer service.
John Lewis leads for a fourth straight year with a score of 83. It outdistances the rest of the industry by a wide margin despite a slight 1% NCSI decrease. John Lewis also outperformed its competition in sales growth throughout 2011.
There is very little differentiation in customer satisfaction among the other large department stores. Marks & Spencer is in second place at 78, also down by 1%. House of Fraser follows closely behind Marks & Spencer, improving 1% to an NCSI score of 77. Debenhams scores 76 after a similar 1% gain. Both House of Fraser and Debenhams have made investments to refurbish stores and improve customer service. The aggregate of all other smaller department stores falls 3% to 76.
Customer satisfaction with electrical retailers drops 2.6% to an NCSI score of 76 as consumers turn to the internet for better prices and more options. All chains tracked by the NCSI posted lower sales over the holidays. Weakened demand for electronics, particularly big-ticket items, has hit the high street stores hard, and smaller chains have suffered the most, falling 5% to an NCSI score of 77.
Small chains typically rely more on quality and personalised service to drive sales, but find it difficult to compete with the pricing power of the online marketplace and large retailers. Weak demand also curtailed Best Buy’s efforts to expand into the UK. The US-based giant incurred major losses in 2011 and has since closed all 11 of its UK stores.
At an NCSI score of 78, Argos has higher customer satisfaction than brick-and-mortar electronics retailers such Comet or Currys, and has increased customer satisfaction each year since 2008. At 75, Comet lags behind Argos, falling 1% to tie with Currys/Dixons, which is unchanged. It had made substantial strides in customer satisfaction over the past three years by improving customer service, but its score remains unchanged this year.
Customer satisfaction Customer satisfaction with e-commerce ebbs slightly after two years of gains, down 1.2% to an NCSI score of 83. Despite the small decline, e-commerce remains by far the highest scoring category. Nevertheless, online retailing has not been immune to the effects of increasingly budget-conscious shoppers. Sales in the UK continue to grow but at a slower pace, with a year-on-year growth of 16.5% in 2011 compared to 25% growth in 2010.
Amazon’s UK business and Play.com lead among online-only retailers. Amazon slips 1% while Play.com gains 1% to tie at 87, the highest score for any company in NCSI in 2011. Since Play.com was acquired by the Japanese firm Rakuten, Inc., it has branched out into social media and website channels in an effort to appeal to more customers.
Apple’s iTunes gains 1% to an NCSI score of 82. iTunes matches the aggregate score of all other retail sites, including the websites of brick-and-mortar retailers. In October, Apple launched its free iCloud service allowing purchases from iTunes to be easily synchronized to multiple devices, and according to customers, value for money has improved.
Customer Satisfaction with Ebay is down 1% to 81. Ticketmaster is at the bottom of the category and lags the rest of the industry by a wide margin, falling 3% to 75—the lowest score for any retailer except supermarket chains Tesco (70) and The Co-operative (68). Ticketmaster’s service charges, processing fees, and shipping charges can typically amount to as much as 50% of the price of the ticket itself, contributing to a lower value-for-money score.