600 Stars Bucked: Starbucks to Close 600 Stores

By Chris O’Brien

600 Stars Bucked

According to Bloomberg.com, Starbucks will close 600 stores within the next nine months and eliminate 12,000 jobs. For some perspective, that’s about 7% of its global workforce. At the end of March 2008, the company boasted 16,226 stores -just over halfway to CEO Howard Schultz’ stated goal of 30,000 outlets.

The company says most of the stores slated for shuddering are near other Starbucks locations. So, maybe opening two or three Starbucks on a block isn’t such a great business plan after all? Or is it actually a very sly strategy designed to bully smaller competitors out of business?

Starbucks Chief Financial Officer Peter Bocian admits that the stores targeted for closure were cannibalizing 25-30% of the sales of other nearby locations. But here’s the kicker. Starbucks stocks rose 4.5% immediately after the announcement.

Follow the logic here. Starbucks opens stores that it can’t afford and then closes them and gets a boost on Wall Street. Meanwhile, local competitors are put out of business while Starbucks carries the unprofitable stores. Once competitors are closed, Starbucks closes its redundant stores. That leaves the other one or two nearby Starbucks perfectly positioned to not just regain the customers from the other Starbucks but also to gain all the customers from the closed down competitor.

Maybe I’m just paranoid. Or maybe a company aiming for 30,000 stores is a beast that someone needs to slay.

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6 Responses to 600 Stars Bucked: Starbucks to Close 600 Stores

  1. timjo62 says:

    I think that is an adequate and fair synopsis. Some of us Students for Fair Trade were discussing the issue of Starbucks running independent coffee shops out of business the other day. The one thing I can add was that about 4-5 years ago, right before I started grad school the Wall Street Journal ran a story about how Starbucks opening stores right near (and in one case next door) to independent coffee stores actually increased sales at independent coffee shops. I don’t believe it was actually an academic peer reviewed study just a report from the WSL journalist.

    One thing is pretty much a given though, Starbucks got the American consumer used to paying more for coffee and most if not all of their coffee is gourmet (not saying it tastes good) so I’m pretty sure they can take credit for getting Americans to get a palate for gourmet coffee. After the consumer acquires a taste for good coffee they can then consume responsibly by buying fair trade organic and supporting local independent businesses.

  2. Gayle says:

    For anybody who likes bottled coffee drinks, a fair trade (and organic) alternative to Starbucks is the coffees by Adina. They are certified by TransFair, and you can actually pronounce all the label ingredients (as opposed to Starbucks’ scary contents). I especially like the Vanilla Latte (Guatamalan beans) and Ethiopian Espresso (Harrar beans).

  3. Lynea says:

    I have a serious problem. I am addictied to starbucks coffee, and I don’t care!!!!!!!!11

  4. […] July 23, 2009 Starbucks trials unbranded stores in ’stealth’ move Starbucks has ditched its branding on three trial stores and redesigned them to resemble independent local cafes. The trial, which is running in the coffee giant’s home city of Seattle, uses the address of the cafe in its branding. For example one is called 15th Avenue Coffee and Tea. In addition the products sold are also non-branded. Starbucks senior vice president Tim Pfeiffer said the new stores aimed to reflect the local community more than the chain’s regular stores currently did. One of the trial outlets will feature poetry readings and live music. Photo Credit: Bean Activist […]

  5. Starbucks Barista says:

    I’m just a barista, so I really have no idea what is going on within the “mind of the beast,” but down here in the belly section things are looking steadily more business like. In previous times we baristas were usually asked to promote whatever new seasonal drink was on the menu, lately its all been about VIA instant coffee sales. In this time of economic downfall, starbucks is beginning to show its true colors-corporate green. The closure of 600 stores is definitely not an act of desperation, starbucks will come out on top when the economy comes back. 30,000 is an easily attainable number.

    Thats my two cents.

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