SAVE   |   EMAIL   |   PRINT   |   RSS  
Holiday horrors hurt retail's bottomline
Analysts say retailers risk losing billions in sales as customer service dips closer to Christmas.
December 2, 2005: 3:24 PM EST
By Parija Bhatnagar, staff writer

NEW YORK ( - Messy stores, long lines, out-of-stock hot items, rude sales people. Sound familiar? Not only are these holiday horrors frustrating for consumers but they could also potentially be leaking billions in lost dollars for retailers.

Retail industry watchers say the situation only gets worse for the millions of frazzled shoppers the further they get into the holidays, resulting in declining customer satisfaction leading up to Christmas.

University of Michigan professor Claes Fornell, who developed the American Customer Satisfaction Index, said it has consistently shown that satisfaction starts to slip in the last two weeks of the November-December gift-buying period, until Dec. 26, "but it probably goes beyond that into January too," he adds.

Why should retailers care? Two reasons.

One, Fornell estimates that a 5 percent drop in satisfaction can result in about a $12.5 billion decline in retail spending. This may seem like a drop in the bucket given that the National Retail Federation (NRF), the industry's largest trade group, expects total holiday sales this year to grow 6 percent to $439.5 billion.

However, the pivotal two-month shopping period can account for as much as 50 percent of some retailers' annual profit and sales. Therefore, every dollar counts during this time, he said.

Second, and more significantly, is the potential for lost business down the road.

In other words, an unpleasant shopping experience could result in consumers shopping less frequently at a particular retailer, migrating to rival stores or shunning it altogether, he said.

Fornell cautioned that merchants cannot afford to keep ignoring the problem.

"The consumer is more powerful today than before," he said. "People have other shopping alternatives, including the Internet. As competition grows, it's even more crucial for retailers to build customer loyalty."

Pressures of the season

Kansas City, Missouri-based Service Management Group is a performance monitoring firm that tracks customer service and satisfaction at 40 U.S. chain stores, including Borders, Hallmark stores and leading department stores.

Co-founder Andy Fromm said his company's data going back 10 years has consistently shown a 5 to 15 percent drop in satisfaction levels and loyalty ratings as Christmas approaches and ahead of Valentine's Day as well.

"Not only does the already declining overall satisfaction measurement dramatically dip from Dec. 23 to 25, but all of the key driver measurements also drop," Fromm said.

These drivers include cleanliness of the store, availability of assistance, speed of check-out, variety of merchandise, prompt and friendly greeting, courtesy and friendliness of staff and the availability of an item.

Both Fromm and Fornell agree that seasonal factors are part of the problem.

For instance, retailers see a dramatically higher volume of shoppers during the November-December compared to the rest of the year.

"Stores are busier. Retailers do hire more seasonal workers to meet the customer demand but putting a warm body on the floor doesn't mean people will get the best service," Fromm said.

At the same time, these temporary workers are quickly trained and can't really offer the same level of service that shoppers can expect from the permanent staff.

Larry Freed, president and CEO of ForeSee Results, which cosponsors research for the ACSI index's ecommerce and online component, said shoppers have higher expectations during the holidays, and "they demand more and expect more."

"When expectations aren't met, their frustration levels rise and satisfaction drops," Freed said. He's noticed customer satisfaction levels in the online retail channel dip in the second week of December.

"Retailers have done a great job this year in building trust with their customers," he said. "What can undermine it is if shoppers are led to believe that something is in stock but it isn't, or that they'll get free shipping but they don't, or the product they buy will be delivered on time but it isn't."

So, what can retailer do to make the shopping experience better for their customers?

Fromm recommends retailers try to align their best staff during the peak rush hours. "We see retailers still struggling with this concept," he said.

His other tips seem quite obvious. Retailers should open more registers to speed up checkout. Have employees make sure that people in line at the checkout are holding properly tagged and labeled items. Simplify the layout of the store during the busy sales weeks.

"The worst thing for a retailer is when a potential customer walks into a store and leaves because he can't find the merchandise even though the retailer has it in stock," Fromm said.


Click here for's Holiday Money special report.

Etailers see a sizzling start to the holidays. Click here for more.  Top of page

Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.

Or, visit Popular Alerts for suggestions.
Manage alerts | What is this?