Starbucks, the world's largest coffee chain, announced the closure of 600 underperforming stores in the United States, resulting in over 12,000 job losses. This decision follows an earlier announcement to close 100 stores, and it's part of a larger strategy to improve profitability in the face of economic difficulties.
The closures are attributed to a combination of factors including the impact of economic downturn on consumer spending and the company's own aggressive expansion in recent years. The decision to close approximately 70% of stores operating for under 3 years highlights the financial stress Starbucks is experiencing in many locations.
Starbucks projects approximately $348 million in costs associated with the closures. The company's second-quarter profits fell by 28 percent, and the stock price has decreased significantly, prompting changes in leadership.
Despite the cutbacks, Starbucks plans to continue expanding internationally and introduce new products, aiming to improve profitability. They will also significantly reduce the number of new US stores opened in the coming year.
Analysts suggest the decision wasn't surprising, with unprofitable stores identified as the main reason for closure. It remains unclear if new product offerings and other initiatives to rejuvenate the company will be successful.
In a harsher economic climate, Starbucks’s green-and-white mermaid logo is about to become a little less ubiquitous.
The company, the world’s largest coffee chain, said Tuesday that it would close 600 stores in the United States beginning this year. It will lay off more than 12,000 employees in the process, the most in its history.
The plan builds on an earlier decision to close 100 stores, which are included in Tuesday’s numbers. Starbucks is retrenching in an effort to recapture the once-mighty growth it built upon venti soy lattes.
A cavalcade of economic troubles, from imploding housing markets to rising gas prices, has pinched consumers, hurting not just Starbucks but nearly all retailers. The chain is struggling to attract customers for the afternoon frappuccinos they once bought eagerly, said Sharon Zackfia, an analyst at William Blair & Company.
“I don’t think it’s overly surprising,” she said of the announcement. “These stores were in aggregate unprofitable.”
Shares in Starbucks rose as high as $16.53 in after-hours trading Tuesday after closing at $15.62. They have fallen about 24 percent this year.
For years, Starbucks was known for aggressive growth, opening some stores only a few city blocks away from others. As of Sept. 30, the company operated 6,793 outlets in the United States, according to a regulatory filing. About 70 percent of the stores that will be closed have been open for fewer than three years.
As financial stumbles took a toll on the stock price, Starbucks’s former chairman and chief executive, Howard Schultz, reclaimed the company’s reins in January. Starbucks said in May that its second-quarter profit fell 28 percent, to $108.7 million, in what was its weakest quarter as a public company.
In addition to the cutbacks, Starbucks said it would open fewer than 200 new stores in the United States next fiscal year, down from the 250 initially planned.
Starbucks said that it could take up to $348 million in charges and write-offs related to the closings, including costs tied to lease terminations and severance payments.
Starbucks began scrutinizing its stores’ performance this year, Peter J. Bocian, the company’s chief financial officer, said Tuesday in a conference call. Though he said there were no additional plans to close stores on such a broad scale, Mr. Bocian said that the company would continue to examine its options.
“We believe we’ve improved the profit potential of the U.S. store portfolio,” Mr. Bocian said. “We continue to take action in areas we can continue to control.”
Mr. Bocian said Starbucks would continue to focus on expanding internationally.
It is too early to tell if Starbucks’s other efforts to rejuvenate its business, including introducing new products like fruit smoothies, are working, said Ms. Zackfia, the analyst. The company has been successful with its introduction of Pike Place, a mild drip-blend coffee.
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