Is there a Correlation between Customer Service and Investment Return?
Roger is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Several weeks ago I had a horrible customer experience with electronics retailer Best Buy (NYSE: BBY). The situation was resolved by the local store manager in a satisfactory fashion, but not before I had posted many updates about my experience on social media over the course of a week. On a larger scale, Best Buy had a real customer service fiasco late last year when they were unable to fulfill a number of orders for the holiday season and waited until late December to notify these customers.
My recent experience led me to review the performance of their stock. Looking at results through February 23, 2012, total returns on the stock were as follows:
|
|
YTD |
12 mo. |
3 yr. |
5yr. |
10 yr. |
|
Best Buy |
7.79% |
-21.12% |
-0.77% |
-10.73% |
-0.30% |
|
Nordstrom |
7.12% |
21.48% |
69.90% |
-0.94% |
16.58% |
|
Amazon |
3.34% |
1.25% |
42.59% |
34.41% |
29.91% |
Source: Morningstar as of 2/23/12 - periods greater than 1 year are average annual returns
I compared Best Buy’s returns with two other retailers, Nordstrom (NYSE: JWN) and Amazon.com (NASDAQ: AMZN), two companies with fantastic reputations for stellar customer service. This is at best an unscientific study and proves nothing. Certainly we all know that past performance is not indicative of what might happen in the future.
Nonetheless it is interesting that investors in these other two retailers, both with a reputation for exemplary customer service, have fared far better than holders of Best Buy over the past ten years.
Legendary Fidelity fund manager Peter Lynch, arguably one of the greatest investing minds of this or any other generation, often would invest in the shares of companies that he and his family patronized. His reasoning was that if he and his family enjoyed the products and the customer service experience offered by these retailers, others would also and they would spend their money there as well.
Is there a correlation between retailers, the level of customer satisfaction, and the return on their stock? I don’t know, but it would be an interesting study (or perhaps such a study exists). This article is simply the result on my own curiosity and no conclusions or investment decisions should be made as a result of reading this post. Neither I nor any of my clients hold positions in any of the stocks mentioned.
Roger Wohlner, CFP®, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides advice to individual clients, retirement plan sponsors, foundations, and endowments. He recently cofounded Retirement Fiduciary Advisors to provide direct investment and retirement planning advice to 401(k) plan participants. Follow Roger on Twitter and LinkedIn. Roger also blogs at Chicago Financial Planner and for US News.
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