STAR dims as latte hits thirty BUCKS per gallon.
Starbucks announced that it is shuttering 500 more stores (the company announced 100 closings last month), cutting 12,000 jobs (7% of its 172K “partners”), and slowing new store development.
Excerpts from the Wall Street Journal (with my take):
WSJ: “The pullback is a sign that the Seattle-based coffee giant is continuing to see weak sales as high gas prices and other pressures on consumer spending prompt Americans to cut back on extras”.
KEH: Latte @ $3 per 12 ounce serving = $31.99 … ouch
WSJ: “Starbucks has been struggling to attract customers amid the slowdown in consumer spending and increasing competition from other coffee and restaurant chains, such as fast-food giant McDonald’s.”
KEH: McD’s wins taste tests and costs $2 / cup less … Hmmm …
WSJ: “The company said it will eliminate as many as 12,000 full-time and part-time retail positions in connection with the closures; some baristas will get jobs at other stores … Workers will find out whether their store is closing by the middle of this month.”
KEH: Isn’t SBUX supposed to be the model of kumbaya HR management? Worse than getting fired is being told that you’ll be told in a couple weeks.
WSJ: “Starbucks said the sites earmarked for closure include those that aren’t profitable at the moment or aren’t expected to provide the company with acceptable returns on its investment.
KEH: I guess that previously, unprofitable stores with low ROIs were just fine.
WSJ: “(SBUX is coming off a period of rapid expansion intended to ) to boost sales growth and siphon traffic away from some of its stores where long lines were driving away customers … company research showed people sometimes weren’t willing to cross the street to buy a cup of coffee.”
KEH: Not to pay $5 a cup, that is.
WSJ “But the density of Starbucks stores in places like New York and other large cities turned the chain into a symbol of ubiquity, spawning countless jokes. Last year, as Starbucks’s sales began to soften, it became clear that the company’s expansion was cannibalizing its sales in a way that was threatening the chain’s success, as well as causing the quality at its existing locations to slip”.
KEH It’s called “decreasing marginal returns” … or, simply ”hitting the wall”
WSJ “(CEO Howard) Schultz has been pushing through changes, including the introduction of a new, milder daily brewed coffee that the company says has helped boost Starbucks’s drip-coffee sales. But, in doing so, he has alienated a small group of loyal Starbucks customers who prefer the strong coffees on which the chain built its reputation”.
KEH: Remember New Coke?
KEH: Starbuck’s had a great run. Welcome to the real world.