600 Stars Bucked: Starbucks to Close 600 Stores

July 1, 2008

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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