Starbucks close 600 as they embark on transformation strategy

Posted by Daniel Palmer on 2nd July 2008

Starbucks Corporation has announced the next step in its multi-faceted plan to transform the company, with a decision to close approximately 600 underperforming company-operated stores in the U.S. market.

The decision followed extensive evaluation of their US company-operated store portfolio and includes the 100 stores targeted for closure in the company’s previously announced plans. In addition, Starbucks now expects to open fewer than 200 new U.S. company-operated stores in fiscal 2009, below their initial forecasts.

The majority of the store closures are scheduled to occur during the remainder of fiscal 2008 and the first half of fiscal 2009. The timing of the closures is dependent on finalizing third-party agreements, and is therefore subject to change. Both full-time and part-time retail positions will be eliminated, however the company hopes to place many of the affected partners (employees) into available positions at nearby Starbucks stores.

“In January, we committed to transforming the company through a series of critical and strategic initiatives to improve the current state of our U.S. business and build the business for the long term,” stated Howard Schultz, chairman, president and CEO of Starbucks. “Our executive and field leadership teams conducted an extensive review of our U.S. company-operated store portfolio with a goal of enabling our organization to focus its efforts on locations where we can more effectively improve the customer experience.”

“Throughout the history of the company, we have always aspired to put our people first. This makes our decision to close stores difficult, because it is disrupting the lives of the people who have worked so hard to deliver superior service to our customers,” Schultz continued. “We sincerely thank each one of them and are very proud of their many contributions to the company. At the same time, we recognize that it is necessary to make decisions that will strengthen the U.S. store portfolio and enable us to enter into fiscal 2009 focused on enhancing operating efficiency, improving customer satisfaction and ensuring long-term value for our partners, customers and shareholders.”

The executive and field leadership teams used several criteria to identify stores for closure that included locations that were not profitable at the store level and not projected to provide acceptable returns in the foreseeable future. In addition to site and market-specific criteria, consideration was given to the impact of current and anticipated economic trends.

Starbucks shares rose in value following the announcement but the closures are symbolic of the struggles many American companies are facing in the wake of concern about the economic climate. Starbucks has also been placed under greater pressure by increased competition as companies like McDonald’s realise just how lucrative the sale of coffee and other warm beverages can be.