The biggest contrast between these two companies is not what you'd think. It's not sheer size that sets them apart, or Overstock's financial woes, accounting issues, regulatory troubles and CEO escapades, but rather an intangible--customer service. Amazon's, as I've personally experienced, is excellent; Overstock's is not. It came in last in a recent survey of internet retailers. The internet is chockablock with this kind of anecdotal evidence of poor service.
Look at their respective share prices and voila! There it is. Overstock is hovering at the bottom of its 52-week lows, while Amazon has wiped the floor with all the major indexes and, of course, Overstock, over the past five years.
I call it the Lousy Customer Service Factor.
Think about it. What does lousy customer service imply? I'd say it reflects many things: poor management and poor employee morale chiefly among them. Great customer service, on the other hand, means competent, well-directed employees and management that knows what it is doing. The result is loyal customers and repeat business, and no need to fudge the numbers or mislead its customers on pricing, both of which Overstock has done, getting it in SEC trouble and pushing it toward bankruptcy.
As I pointed out earlier this month, Amazon actually let me return a sweater after I removed the tags. No brick-and-mortar store would let me do that unless I was the nephew of the owner. And you can see the difference in the stock price.
The same principle can be applied broadly, I think.
For instance, I've been a Dell (NASDAQ:DELL) customer, personally and through my former employer McGraw-Hill (MHP), for nearly twenty years. What set Dell apart in bygone days was its quality control and the high level of its customer service, which justified a higher price.
Over the years, unfortunately, its formerly superb customer service has declined. In the old days you'd get a lifetime of telephone customer support. A call to Dell would be fielded by a technician in California or someplace out west who really knew his or her stuff.
Today, you get a grudging one year of customer service, including phone help from an automaton half a world away, reading from a script, going through troubleshooting steps by rote. (It's the "automaton" part that troubles me, by the way, not the "half a world away." Amazon outsources its customer service too.)
Sure, Dells are cheaper than they used to be. But not only has customer service declined, but so has quality control. I had one Dell from the old days last ten years before it conked out. Yet a spanking new Dell that I bought last spring developed memory and motherboard issues only a few months later. Even the keyboard went bad.
A technician sent by Dell to service my computer pointed out that my experience was not unusual. Dell now uses cheap components from China, he said, that sometimes quickly go bad.
Apparently my experience with Dell is not unusual. Dell gets a terrible, one-star rating for customer service at Reseller Ratings.
What this suggests, if one extrapolates from my experience, is that Dell is competing in a tough industry by shortchanging its customers. It is not a strategy that is going to work. They've certainly lost me as a customer. And if I were an owner of the stock I would sell, and buy the shares of he computer maker that has the best reputation for customer service - Apple (AAPL).
This is reflected in the share price of the companies. Apple creams both Dell and the stock market indexes over the past five years.
Is this an overgeneralization? I don't think so. Look at this list of the ten most hated companies in America, and it's top-heavy with underperformers like the bankrupt American Airlines (AAMRQ.PK), AT&T (NYSE:T) and Best Buy (NYSE:BBY), all noted for their horrendous customer service.
Best Buy is a great example of that. It's been getting raked over the coals for its customer service lately. Take a look at how its share price has performed and you can see the Lousy Customer Service Factor at work.
Sure, it's possible for a company to have great customer service and be lousy in every other respect. But I think that the two are so closely associated that they are something investors need to watch for very carefully.