Stock Performance Tied to Customer Service

NEW YORK ( TheStreet) -- As Nordstrom ( JWN), Netflix ( NFLX) and Amazon ( AMZN) strengthen their business through enhanced customer service, some of their competitors are leaving cash on the table.

According to the American Express ( AXP) Global Customer Service Barometer released today, 61% of 1,000 American consumers surveyed think good customer service is more important amid economic instability and are willing to spend an average of 9% more at a retailer that provides it.

There was more potent proof of this finding in 2006, when a Journal of Marketing study found that the performance of top 20% of companies in the University of Michigan's American Customer Satisfaction Index (ACSI) outpaced the broader stock market and generated a 40% return.

Those companies combined outperformed the Dow by 93%, doubled the S&P 500 and nearly tripled the Nasdaq. According to the most recent ACSI retail data from February, Nordstrom leads all department-store retailers with a score of 83 out of 100, up 6 points from 2009. This prefaced a 44% increase in net earnings, a 17% jump in net sales and a 12% boost in same-store sales in the first quarter that ended May 1.

Netflix, meanwhile, topped all Internet retailers with an 87 customer-satisfaction score, which coincided with first-quarter increases, including a 44% surge in earnings, a 25% increase in revenue and the addition of 1.7 million users. Second-place Amazon, with a score of 86, increased first-quarter sales in the U.S. by 47%.

"Many consumers say companies haven't done enough to improve their approach to service in this economy, and yet it's clear they're willing to spend more with those that deliver excellent service -- suggesting substantial growth opportunities for businesses that get customer service right," says Jim Bush, American Express Executive Vice President for World Service. "It's important to see customer service as an investment, not a cost."

Not every company is making the connection, as 27% of respondents in the American Express survey say they feel businesses haven't changed their attitude toward customer service and 28% say retailers are actually paying less attention to consumers' requests and complaints. Even worse, one in five consumers feel their business is being taken for granted.

This sentiment is reflected in ACSI scores of companies like Wal-Mart ( WMT), whose 71 rating is tied with Macy's ( M) for last and is a 12% downturn from 1997, when scores were first tabulated.

Wal-Mart's move to trim brands earlier this year was ill-received as first-quarter same-store sales in the U.S. slumped 1.4%. Competitor Target ( TGT), meanwhile, is second only to Nordstrom on the customer-satisfaction index. Its same-store sales in the U.S. increased 2.8%.

With 91% of American Express respondents saying they consider customer service important to choosing a retailer, even companies with a spotty customer-service record are starting to take notice. ASCI cellar-dweller Macy's, for example, last year launched its My Macy's program, which tailors store offerings to the needs of shoppers in different regions. The gambit worked: Same-store sales jumped 5.5% in the first quarter and an $88 million loss in 2009 turned into a $22 million gain during the same period in 2010.

A customer-service push won't always help when there are other factors at play. In Barnes & Noble's ( BKS) case, a ASCI score of 84 that was best among specialty retailers didn't prevent store sales from decreasing 3% in the last quarter and almost 5% for fiscal 2010 as customers migrated to its online store and e-books.

However, 81% of American Express respondents are more likely to give a retailer repeat business after receiving good customer service, while 75% say such measures will make them spread the word about a company that treated them well.

"By focusing on our company culture, we've been fortunate to hire great people where providing great service is in their DNA," says Aaron Magness, senior director of brand marketing and business development for online shoe retailer Zappos.com, which is owned by Amazon. "If you treat the customer how they should be treated and form personal connections with them, they'll want to tell others about it."

-- Reported by Jason Notte in Boston.

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Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, The Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.