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7investing Lead Advisor Dan Kline is joined by ACSI Managing Director David VanAmburg to discuss the state of retail during the pandemic
November 12, 2020 – By Samantha Bailey
Normally, the American Customer Satisfaction Index (ACSI) does one extensive survey each year for every industry it covers. This year, as you almost certainly know, has not been a normal year. The pandemic has accelerated a number of trends and has caused some shorter-term changes to how people shop for a number of things including groceries.
That led the ACSI to decide to do a second set of surveys this year covering retail, supermarkets, and internet retail. The results showed that things have changed for many companies in this space. It’s a case where some winners when it comes to dollars may not be doing a great job keeping customers happy.
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ACSI Managing Director David VanAmburg joined the 7investing podcast to help parse the results and to explain which companies have proven to be the winners and losers when it comes to customer satisfaction. That’s not always a clear answer, but the ACSI report shows that some of retail’s big winners may not be keeping their customers happy and that’s something investors should at least consider.
0:36: What is the ACSI?
2:55: How has retail changed during the pandemic?
4:14: Department stores and discount retailers
9:11: Will these stores rebound quickly in the post-pandemic world?
14:30: Why did Whole Foods see a drop in satisfaction?
15:45: Are people being too hard on stores?
17:19: Internet retail
18:16: Internet retail
20:34: Why did Amazon have a big drop?
22:20: Will there be any lasting impact from the pandemic on retail?
24:24: Why was Sears one of the better performers?
Daniel Kline 0:02
Welcome to the 7nvesting podcast! I’m Dan Kline, and I’m being joined today by David VanAmburg – Managing Director of the American Customer Satisfaction Index. David, welcome to the program.
David VanAmberg 0:12
Great. Happy to be here.
Daniel Kline 0:14
Very excited to have you. We’ve done a bunch of shows together over at the place I used to work. But it’s a bigger audience here because this is this is a public facing show. It’s on a, you know, it’s our podcast, but it’s also going to air on our YouTube channel, on our Twitter, on Twitch, wherever else things might go. So some people I know, this is hard to believe, don’t know what the ACSI is. So could you give them like, you know, a 10,000 foot overview of sort of what your organization does.
David VanAmberg 0:40
Usually I’m asked for 20,000 foot overview. Let me see what I can do. I think now, right…drop it down by half. Um, yeah. So the ACSI, we were started as part of the business school at the University of Michigan, way back in 1994, it’s crazy to think that it’s been over a quarter of a century now.And, and the ACSI is essentially a measure of customer satisfaction. And all of the goodies that swirl around that: the quality of the products and services, the value for money that you get for them, how loyal you are to these various brands, and so on with over 300 companies now in about four dozen industries in ten sectors of the economy. So it’s all the things that household consumers typically purchase and use on a fairly regular basis.
Daniel Kline 1:32
And you normally follow an annual schedule, but in this case, the report we’re going to talk about today you kind of diverge from that, because we are living in sort of strange times.
David VanAmberg 1:41
Yeah, we we typically put our retail out in February. And of course, we’ll do so again in next February as an annualized study. But with the pandemic, with COVID hitting just a month after that study came out, recapping the 2019 data basically, we thought, well, let’s actually look at just the last six months. Let’s take the data that we would just be churning along, collecting anyway for all of these companies from basically April 1 through September 30, which would capture you know, obviously a very, very big chunk of what’s been happening to retailers since COVID hit and see what that data looks like compared to to the prior year data.
Daniel Kline 2:27
So I’m glad you didn’t take my idea to do a household satisfaction survey where you ask everybody how satisfied they are with the people they are now so tired of seeing, that they live with, because I know my rating. I would be like right at about Comcast levels.
David VanAmberg 2:40
Love everyone we live with. But yes, 6, 7 what are we up to now, 8 months? It is definitely…. it definitely takes its toll.
Daniel Kline 2:51
Yeah, so today we’re gonna cover the ACSI Special COVID-19 Retail Study 2020. It is a long name. On departments and discount stores, we’re gonna skip specialty retailers, we’re going to skip health and personal care stores. We’re going to talk supermarkets, we’re going to talk internet retail. This report tells us sort of how things have changed during the pandemic. David, why don’t you give us the sort of overview and then we’ll sort of dive into department stores.
David VanAmberg 3:16
The overview for retail is that it’s somewhat of a mixed bag, and and if I can just cheat slightly and mention the other two that you don’t want to talk about. It’s interesting that that the last two that you mentioned are the ones that were really seriously impacted by COVID. Department stores not so much, especially retail which is kind of like department stores and they may not have all the things department stores but your Gap’s and your Old Navy’s, and you know those kinds of stores. So they’re similar to department stores in terms of kind of what we think of them as places to go shop and drugstores not really so much impacted but internet retail and supermarkets – those two categories in particular, for reasons that you know, we can talk about in more detail, really took a hit, really were negatively impacted in the in the six months that we looked at the data.
Daniel Kline 4:12
So let me pull up your department stores and discount retailers. This is let’s hope this works. And I think …
David VanAmberg 4:21
Yeah, this is nice for me because then I don’t have to like look down at my notes. (laughs)
Daniel Kline 4:27
I am assuming I pulled up the correct one because you can see it and I can’t but department stores. So Costco won. Costco is traditionally your top department discount store. That makes sense. It’s membership based. Anyone who pays money to be someplace is probably a fan. But their numbers went down a little bit. Do you attribute that to just general, “boy it’s not that fun to go shopping” and maybe they were out of toilet paper that time you went. Is this a meaningful change? Or is it just sort of like “oh, ugh, everything is worse.”
David VanAmberg 4:54
That’s that’s a little bit of noise and and combined with as you say a little bit of just your experience most anywhere was going to be a little bit worse. Once various restrictions were put in place, once inventories maybe got a little tighter for certain types of things, sure.
Daniel Kline 5:15
And then so Target was down two points as well. And I just want to point out that Target, Costco, Walmart, Dollar General, we’re going to talk about all of those. These were the companies that have actually financially done the best. So I’m not sure that – let me ask you, David, right now when you just need to get stuff, is customer satisfaction as important as it was before this?
David VanAmberg 5:36
Yeah, I mean, it is and it isn’t, right? And that’s my weaselly way of answering. It is in the sense that when we do shop for these things that we just need to get, we’re super frustrated when we can’t get them, right? I mean, when we’re when we’re struggling to find them. Um, that’s still a very disappointing experience. But at the same time, if you want to put it in slightly different terms, and think about your Dollar Generals, your Walmart, those are not places that typically have strong satisfaction anyway, right. These are not companies, these are not retailers that we’ve had anywhere except near or at the bottom of our list of findings for years, and years and years now. So that said, um, I don’t think that anyone’s particularly bothered by the fact that they weren’t all that satisfied to begin with, with a Walmart or a Dollar General, or some of these other kinds of, you know, dollar stores, discount stores. It really is about get in, get out, hope I can find what I need. Not super concerned about my satisfaction with the experience, Except, as I said at the outset, you know, I’m going to be frustrated if I walked into that Walmart and the whole wall of toilet paper is just empty. And now I’ve got to go to another store. That’s where it gets a bit, you know, that’s where it gets more frustrating.
Daniel Kline 7:00
So Dollar General had a big drop, they lost 4%, or three points. They came in at the bottom at 70. Walmart stayed the same at 71. Overall, (is a) 71 a bad number for retail but a reasonably good number in terms of your overall survey?
David VanAmberg 7:17
No, it’s still pretty low even for overall. Right now we’re showing a department discount store average over the last six months have a 75. And that’s about average, average, average of the national average of all goods and services that we measure. So 75 is kind of your 98.6, if you will of you know of customer satisfaction with all household goods and services. So a 70, or 71 would still be below average, not only for retail, but but you know, just generally speaking for all the types of experiences that we have.
Daniel Kline 7:52
So for Walmart, is this a case of where they’ve managed to sell their customers that value is more important than service? You know, that pricing is above all?
David VanAmberg 8:00
Yeah, absolutely. Lowest prices ever! You know, all that good stuff that they preach for years now. They they bank on their value. And this is not a COVID thing. This is something we’ve been saying about Walmart for decades. Now, they are not a company that sells itself on its quality. Quality in terms of the pleasurable-ness of the shopping experience, but rather on the fact that you’re going to get great prices. And so you know, even with this data, we’re just not seeing anything different there. We’re seeing lots of people flocking to these stores, these stores are doing well during the pandemic financially because they are value based so they are the places that people want to shop try to get the most toilet paper for their money or whatever it is they’re looking for. And so particularly for those kinds of stores, the Dollar Stores, the Walmart’s, it’s it’s not satisfaction that’s drawing you to them like it is to a Nordstrom, for example. It’s the price.
Daniel Kline 9:01
So there’s a speculative question, I know you’re a data guy, so feel free to answer however you want. But is this one of those cases where as we move out of the pandemic, which in theory will happen at some point, I don’t know when, and like we’re already seeing, there’s fewer shortages. You might not be able to get every flavor or size, but you’re going to have toilet paper, you’re going to have paper towels. As we move out of that and then eventually move out of wearing masks and distancing and, you know, not having to shirk when we see another person walking near us. Do you think these numbers rebound just because it’s sort of like an exhale?
David VanAmberg 9:34
Exactly, yes. I mean, we predicted that we would see lower numbers at the industry level, and for pretty much every retailer, and most retailers have dropped, and that’s the as you say, that’s the inhale. And we’re going to get to the exhale where, you know, they can come back to whatever normal looks like. And and I think we’re going to see probably a bit of a halo effect. Not just satisfaction returning the level it was, but this relief that we can be normal again is going to create a lot of sunnier dispositions, right? A lot of goodwill when it comes to having retail experiences where we’ll say, “wow, this is I forgot how good this was, you know, to be able to have that kind of shopping experience.”
Daniel Kline 10:24
Again, if you’re just tuning in. I am Dan Kline. He is David VanAmburg, the Managing Director of the American Customer Satisfaction Index. We’re talking a special report they did on retail that covers the pandemic. And of course, at the end, David is going to give us the exact date the pandemic ends, no, he’s not going to do that. We’re going to move on and talk about supermarkets. So let me share my screen here, bring up your report on supermarkets. This one didn’t really surprise me. This is a really consistent category for you. How did you take this data?
David VanAmberg 10:57
Yeah, this was not a surprise. This is a big drop. Unlike department and discount stores, which just fell a single point from 76 to 75. A 3 point drop at it for an entire industry and acsi is a huge deal. And that’s what we’re seeing here we’re seeing a very, very big erosion in customer satisfaction. For supermarkets, some of the best rated ones: the Trader Joe’s, the Wegmans, the Costcos, the Publix is didn’t move much. But the rest really did take a dive compared to their pre COVID scores. And it’s not a surprise because this was the retail category that we weren’t going to give up on because we couldn’t give up on them, right? We might avoid going out in public to buy a new shirt if we’re working from home, or you know, sheltering in place. What difference does it make? We can kind of hold off on some of those kinds of things. But we needed our toilet paper, we needed our milk, we needed our eggs, right? We needed to be able to get to supermarkets to buy the things week to week that we that we have to have to live. And this is where particularly in the early phases of the pandemic, inventories, or rather the lack thereof, really caused this category to take a big hit. People were extremely frustrated with long lines, lack of various kinds of staples that they were looking for. My personal experience for us it wasn’t toilet paper, and some of those kinds of things. Although they were hard, you know, they became scarce for a while. I got most frustrated when I couldn’t find flour. When we went through that period when just wheat flour was just gone, and I was trying to make some things for you know, some baked things for our kids and it was like I can’t make you guys chocolate chip cookies because there’s no flour. Isn’t this great? This is crazy. Um, but you know, so no surprise there really, that this industry got beat up pretty badly for a while when when the pandemic was at its height
Daniel Kline 13:03
Is some of this, you know, the rich getting richer because Trader Joe’s Wegmans, Costco, Publix, these are all beloved chains for the most part. They also have really good supply lines. I look at the bottom here you’ve got Albertsons, which lost an astounding 8%. But Albertsons was in financial trouble. Is it likely that they just couldn’t get things on the shelves because they, they weren’t competitive for them compared to other people?
David VanAmberg 13:25
Exactly! When you’re when you’re at the top, even in something is as horrific to retailers as a pandemic, like this was, it’s easier to stay there. It’s easier to maintain. When you’re already having trouble, when you’re struggling as a retailer, this was just going to make it far worse. And you know, we’ve seen this in other industries, restaurant industries, similar to retail, in the sense that some that have struggled some that were struggling before the the pandemic. This is just actually put them out of business, right? They’ve just literally gone under, because they were already kind of on the verge of going over the cliff. And this just was the final push. But others, you know, obviously are still surviving. But having started at that lower point, like an Albertsons and their chains, which are not strong performers in the ACSI. It was going to be even more of a struggle for them than these beloved brands like Wegmans, like Trader Joe’s.
Daniel Kline 14:28
So I’m surprised to see that Whole Foods, which is an Amazon company, dropped by 4%. Is that partially because they weren’t ready on the delivery front? I mean, I remember in the early days of the pandemic, I would like ride my phone for like hours it would seem, to try and keep refreshing to get a slot. Is some of that just that dissatisfaction?
David VanAmberg 14:47
Yeah, I mean, you know, again, in other industries like restaurants, same with retail, some did a better job of being prepared for that pivot than others. Others were just not quite as on the ball about the delivery aspect of it, the mobile app side of that, you know, all the things that we were expecting to be able to do, especially from the safety of our homes. So I think you are seeing some variation, you know, within this group of companies based on their their preparedness, or the speed and efficiency with which they could pivot to a better type of approach to doing this, under the circumstances.
Daniel Kline 15:31
I’ll ask another non data driven question. Do you think people are being a little harsh? Like, I know, like, you’d go to the supermarket, and my wife doesn’t like the select-a-size paper towel, and that’s all they’d have. But it wasn’t like, I’d come home and she’d like, be screaming, she just be like, “oh, I wish we had the other kind.” Like, it feels to me like most of these chains, most of these grocery stores, did a really good job. And the fact that I had to get like bone in pork chops instead of boneless really feels like me being a jerk if I’m not satisfied.
David VanAmberg 15:59
Well, if my grandmother were still alive, she would, of course, tell me that back in the Great Depression, which is what, almost 100 years ago now. We wouldn’t have acted this way. Right? That that she would have been in her 20s, during the late 20s, early 30s, that people were just kinder to each other. That they understood that they were willing to make sacrifices. We’re just a selfish group. This century later generation or so two generations, right? So I think that could be part of it. That we just have very high expectations, especially in a digital age. And I’m sure that, you know, to some extent, the fact that we have become such a digital world, made it even more frustrating to people when they were put in a position of sheltering in place thinking, “well, you know, so much is digital now. This isn’t going to be so bad.” And yet, it actually was still pretty bad, right? I mean, it didn’t, you know, as far as getting things done, that we wanted to get done getting kind of shopping done that we wanted to get done. It didn’t really help all that much. So I think, you know, that set of high expectations has maybe made us rather cranky, at times about not being able to get exactly what we want when we want it.
Daniel Kline 17:16
Yeah, we’re gonna segue into internet retail. I’ll make a comment there. It was jarring to me at the beginning of the pandemic, when I went to buy things on Amazon, and they just weren’t there. And I understood that there wasn’t going to be hand sanitizer, that maybe masks would be hard to come by. But when they didn’t have paper towels, when you couldn’t buy a five pound weight. Like there was stuff now, of course, in the beginning days where they were prioritizing items you needed. Sure there were times I’m like, “what do you mean, you don’t have gluten free chocolate chip cookie mix?” Like and it’s like, well, that might be a niche product compared to, like, making sure we have rice. And the thing I don’t think – we’re going to talk about Amazon in a second. I think some of these companies did not do a great job communicating to customers what their strategy was. Like, I knew that Amazon had made changes to its warehouses, what it was willing to accept delivery on, but that’s not something they communicated in commercials. They could have said “hey, I know you want to buy this puzzle you want to put together, but right now we’re focused on getting toilet paper” you know, and, and I feel like that did hurt them. But let’s look at how the internet retailers came out because it wasn’t good. In fact, I would say this was pretty disastrous, David.
David VanAmberg 18:24
Yeah, I mean, this is a four point drop from 81 to 77. And taking all the different retail categories into account, even the couple that you know, you’ve left off this particular discussion. This was by far the worst drop. The biggest drop. And, and to your point, it’s really not at all surprising. And here it has nothing to do with, you know, how easily could I navigate your site? How awesome are the pictures and descriptions of the products? It isn’t about the web site experience at all. It’s really about the nuts and bolts of you didn’t have what I was looking for, or you claimed you did have what I was looking for, so I ordered it. And it’s been two months, and it still hasn’t showed up. Right? It’s really about that whole supply chain to delivery phenomenon about internet retail that has caused this huge, huge drop. Particularly again, as you said in the early stages when everybody was going on Amazon and other sites to trying to stock up on things like toilet paper when the supermarket’s were out and either finding no inventory for lots and lots of products or you know, clicking on something and expecting it would show up with your Amazon Prime account, for example, in a day or two. And it didn’t. It may have been a week, it may have been two weeks, or it just may never have showed up at all. And that’s, you know, to harken back to what I was saying just before we segue to this when we live in a digital age and we have these high expectations – that’s going to be more frustrating, really to a lot of consumers than anything else, that I can’t even do that online order that I love to do for various products and services and get them with the efficiency that I expect.
Daniel Kline 20:17
So the best performers on this list were Staples that improved by zero percent staying at a 77, which is not a great rating. I think part of that is Staples was one of those like, “oh, yeah, there’s still a Staples.” Like, they had toilet paper, like four days after everybody else did, because nobody remembered they existed. The other one was Walgreens, and Walgreens is so poorly rated down at 75. I’m not sure it matters. But the big drop here was Amazon. Amazon had a 7% drop. Do you think that’s just that Amazon built up this reputation as they always have everything in stock, and they’re always able to get it to you in a day or two, and they just couldn’t deliver on that?.
David VanAmberg 20:56
Exactly. That and coupled with just the sheer share of market that they have, right? The fact that Amazon is the go to for so many households. Not exclusively, but you know, you can order stuff from Amazon and then you order stuff from various other stores as well, or various other websites as well. But it’s hard to imagine a lot of households that have never bought anything from Amazon or are not buying anything today from Amazon. So I think that the the increase in the volume of business that they did, especially looking to them. For Staples, you know, you’re not going to go on Sears website or or JC Penney’s website, you will Walmart or Target, but not a lot of these other websites looking for toilet paper, for example. But you would Amazon because you think Amazon has everything, I’m sure I can buy toilet paper there too. And, you know, be quite disappointed to see they’re out of toilet paper on Amazon, or I ordered, you know, a case of it, and it showed up five weeks later, which was happening in many cases as well.
Daniel Kline 22:06
I had the opposite experience. I was on Amazon and I ordered and it said it was going to show up five weeks later, then it all showed up. So I looked like I was like hoarding weird Chinese toilet paper, like whatever brands they had. Let’s as we wrap this up, do you think there’s any lasting impact here or this is just like we’re all tired. We’re all frustrated that we had to work…. look, I was mailing, or contemplating having to mail toilet paper to colleagues in the northeast who couldn’t get it. Like, I hope that never happens again. But is this an outlier compared to your normal report, which tends to move based on company actions?
David VanAmberg 22:39
Right. And part of our curiosity here, and our interest here, was, you know, we’re not here to just beat up on all the companies in retail and other categories as well, because of the challenges that they were facing. It was more is there variation? And if so, where is it? Who’s doing a better job? Who, you know, even if someone’s fallen a little bit in customer satisfaction, did they fall far less than most of their competitors? Which suggests, you know, they got things right, or at least more right and more quickly than some other retailer. So it was really more an exercise in you know, can we find some some interesting conclusions to draw here among the competitors. Rather than to be able to say, “oh, my gosh, we’re shocked that the supermarket industry tanked over the six months of the pandemic that we that we measured.” We absolutely expected that would happen. And we absolutely expect as you say that, when that magic day arrives that I cannot tell you, I wish I could, we’ll see that completely rebound, right? It’ll be over, but we’d still expect Walmart to be where it is. And we’d expect Nordstrom to be where it is, right? I mean, it’s stil,l the world is going to be what it is, as far as those who perform better and those who perform worse in retail. But it really did kind of come down to could we find those examples of companies that you know, really persevered and did a pretty darn good job, all things considered, versus others that maybe just said, “oh my gosh, what are we going to do” and they you know, took a month or two or three to really struggle to figure out how to strategize a way forward through this.
Daniel Kline 24:24
The weirdest one on here as we close was Sears was up by 4%. And in my head I went to – that’s kind of like writing a review in the last hours of the Titanic being like, “the bars aren’t crowded! There’s a seat near the pool!”
David VanAmberg 24:36
And that’s exactly right. Yeah, I mean, nobody shops at Sears, right? So it’s like, wow, well, they they’re way down at the bottom and and and they actually have some inventory because nobody bothers to shop there. And so, you know, they kind of had nowhere to go but up, if you will.
Daniel Kline 24:54
Sears was doing social distancing before social distancing was cool based on how few customers they had. On that note, David VanAmburg . Thank you for joining me here on the 7investing podcast.
David VanAmberg 25:06
As always, it’s always a pleasure talking to you, Dan.
Daniel Kline 25:08
Look forward to doing it again.
David VanAmberg 25:10
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