Let’s face it, it doesn’t matter what we investors think about a retail company, the measuring stick is what do the customers think about the products on offer & acquired, as well as their general impression of the service, ambience & pricing structures offered by the retail company.

 If it’s good, customers will come back & they will make positive recommendations to their friends & associates. Not only will sales and profits increase for this year, but well into the future as happy customers return again and again to purchase. This concept is called the ‘lifetime value of a customer’. In my opinion, very few retail managers place sufficient emphasis on the power of this multiplier effect.

 If the shopping experience is bad, the reverse happens, and not only will disappointed to disgusted customers leave, resulting in a loss of a lifetime value of that customer, they will also spread their disappointment to others. But here’s the rub!

 There’s a customer much more dangerous than a dissatisfied customer who complains. It’s the silent, dissatisfied customer who doesn’t express dissatisfaction to the retail company itself but will tell all and sundry about their bad experience. The internet is awash with shocking stats on this matter. I will ignore the shock jocks and settle for a median range as follows:

 Only 1 in 25 (4%) of unhappy customers will complain directly to the company.

Yet a dissatisfied customer will tell between 9 – 15 people about their beef.

 Extrapolate this out and the sales and profit implications are staggeringly bad – both immediately and into the future.

 In this regard, productreview.com.au is an extremely valuable tool to assess what is happening at the coal face. It and the Net Promoter Score (NPS) which measures the likelihood of a customer making a recommendation to family and friends are the canaries in the coalmine.

 Let’s look at one particular company to assess how these ‘canaries in the coal mine’ might be a good indicator of what is happening internally within that company but is not known in the investment marketplace.

 The company is Adairs (ADH), a company which admitted in the 1HFY22 online presentation that it had supply line, distribution & ‘last-mile’ delivery problems impacting upon customer dissatisfaction levels, and it had a 2H marketing campaign in place to win back customer support. Is it or has it worked?

 My assessment of the responses made on productreview.com.au in recent times is that it has not worked, and the problem is as big as it was. Not only are the customers scathing of poor delivery, they also target poor customer service with poor communication, and sloppy delivery instructions. It literally reeks of poor execution and customers are being lost permanently. Its why their product review score is just 2.0 out of 5. Contrast this score with Nick Scali (NCK) the champion of retail on most measurements (growth, return on equity etc) with a 4.5 score. Another favourite of mine is Shaver Shop with a score of 4.1

 And do these scores translate somewhat to share price movements?      

 Yes, they do!

 Ironically, ADH acquired Focus on Furniture in December 2021 and perhaps ADH should take a leaf out of this acquired companies’ customer satisfaction levels where they are highly regarded with a 4.2 rating.

 And now to point out a potential investment target where good service reviews haven’t followed the same direction as both NCK and SSG.

 ADH online and Mocka (an ADH subsidiary) go head-to-head with Temple & Webster (TPW), an online company with a very wide range of goods pitched at the home improvement marketplace. TPW has a very impressive product review score of 4.1 based on some 6,042 reviews (versus 2.0 for Adairs and 3.6 Mocka, the ADH subsidiary). The TPW customers seem very contented which suggests that whilst they have a much larger range than Adairs/Mocka, they have infinitely better control over supply lines, distribution, deliveries, and customer service. Check the individual reviews of both ADH and TPW and you will see it as a case of chalk and cheese. TPW the very definite winner – but the market doesn’t see it as so. Check the market reaction over the last year.  

 So, is the relationship between ADH and TPW skewed? I would say yes.

 TPW, which is doing all the customer service stuff right has been marked down, though part of this markdown might well be because the share price got ahead of itself, and it has suffered along with the general mark down in growth companies.

 Disclosures: I hold ADH in my real portfolios but am sufficiently alarmed at the problem here to pen a letter to the CEO. I don’t hold TPW, but am seriously evaluating its future potential, though the reliance on China for both product and fulfilment is a major stumbling block and who knows the answer to this potential problem.