Lax real estate decisions helped put Starbucks in the position it's now in

Starbucks was so determined to meet its growth promises to Wall Street that it relaxed its standards for selecting new store locations. (Remember ex-CEO Jim Donald's super-ambitious plans?) In some cases, Starbucks misjudged the risks of putting stores close to each other, leading to the decline in same-store sales that the company started reporting for the first time in its history this year. (Read the New York Times article)

>> Boston Globe story: Many Starbucks customers figured out long ago what the Seattle coffee giant seems to have just realized: Opening shops too close to each other isn't good for business.
 

Comments

[espressoblend]

And this is true...

And completely obvious. SBUX should return to its original evaluation for store location selection.

[JavaStarved]

Great news that Starbucks is taking control of the situation and doing what it needs to remain relevant to so many of its fans and followers.

[LeasingGal]

Being lax and doing what it could to meet growth promises has almost nothing to do with the fact that landlords have doubled and tripled rents at certain locations because the felt that they had the company by the (you know what's). I give Starbucks credit for rethinking those hostage situations, closing those stores, streamlining and investing resources into the most productive stores that are found in the locations that many of us frequent.

[limey]

Yeah, good ol' Jim Donald - look at him now hanging out, lots of money regardless of the mess he made – so goes the corporate trail of irresponsibility and limited liability...that'll be Howard when he jumps ship, and sells out to whoever comes in and cleans up SBUX. Then he can continue making his soft-serve sorbetto over at Pinkberry

From the article: “They are trying to bring back the old leadership that did everything right”

Will that old 'small coffee house' approach leadership be able to work and make good decisions in an environment where there are so many stores and a big international push...? Overgrowth and expansion into everywhere/everything possible has diluted the brand. They need to get over their identity crisis, figure out who they want to be from a core product and brand presentation standpoint, and then make some long term executable plans that they stick too.

[ScubaSteve]

In Maryland i know of two Safeway supermarkets with a starbucks inside and a regular starbucks RIGHT NEXT TO the safeway. what is the point of that? you think if starbucks is doing it then they know what they're doing. but apparently not

[iced soy latte]

My store's sales aren't meeting targets as is (we're still considered a high volume store though) but now a new store is opening up in two weeks that is in the same town, less than 5 minutes away, down the road from mine!!! And we already have 4 other stores in surrounding towns, all 10-15 minutes away from each other. How does this make sense??? And I bet my DM is STILL going to get down our backs on why my store isn't reaching our goals!

[wurkurB]

DUH! I HAVE BEEN SAYING THIS FOR YEARS!!! Real estate was the Achilles heel of the Donald strategy.

[SeattleMelody]

As has already been mentioned, the NY Times article ends with the following:

When Mr. Schultz returned as chief executive in January, one of his first moves was to bring back Arthur Rubinfeld, who led the company’s expansion from 1992 to 2002 and who helped create many of the real estate techniques for which Starbucks is known.

“They are trying to bring back the old leadership that did everything right,” Mr. Sweitzer said.

So I'm wondering who at SSC is "old leadership" who is still there working? Perhaps Dave

http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-govManage

^ List of senior officers:
Cosimo LaPorta?
Dave Olsen?

Were these people absent before and just now came back? Is there any chance that old management will be able to persuade Howard to go back to a much more 'exclusive' Starbucks model. I remember the days when you could walk into a Starbucks and ask why can't I buy my beans in a grocery store, and the baristas swore, you'd never be able to buy Starbucks whole beans in your local grocery store.

[StLouieDrip]

First, my sympathies to all of you who are suffering.

@LeasingGal, You might find this article interesting. Here are a few pertinent excerpts...

When coffeehouses find their leases up for renewal, some must close or relocate after Starbucks pays property owners two or three times the fair market rental price, say Stafford and other coffee sellers. Stafford, Mancuso and other small coffee sellers also are troubled by Starbucks' exclusive lease deals with landlords.

And also this from the same article...
Boston Coffee Exchange. For 25 years, Mort and Bonnie Glovin have run this popular coffee stand in the historic South Station train terminal in Boston.

But the Glovins were stunned when the terminal's property manager, Equity Office Properties, would not renew their lease, which expires Jan. 31. The new tenant? Starbucks, says Mort Glovin.

The Glovins printed T-shirts that read "Don't Throw Us in the Grinder." Two thousand customers signed a petition urging that the coffee stand be allowed to stay. Even Boston Mayor Tom Menino wrote EOP, urging the firm to renew the lease.

"Little guys like us mean nothing," says Mort Glovin, 72, a former food-service manager.

And also this...
Penny Stafford, believed to be the first small coffee seller to sue Starbucks on federal antitrust grounds, says she won't cave in. A former commercial real estate agent and mortgage broker, she decided in 2003 to pursue her dream of starting a coffeehouse.

For two years, she hunted for "Class A" retail space in busy high-rises in Seattle and Bellevue. But agents steered her to less desirable sites, according to her lawsuit. When she asked to see better spaces, the agents refused, saying Starbucks had locked up the sites.

"That's when I realized I had a zero chance of getting into one of these locations," Stafford says.

According to the lawsuit, agents told Stafford that Starbucks had signed nationwide exclusive leases with Equity Office Properties and other real estate investment trusts that owned commercial buildings.

Under the leases, the landlords cannot rent to other gourmet coffee sellers, the lawsuit alleges. The agreements also bar landlords from renewing the leases of existing coffee sellers, the lawsuit alleges.

In exchange for exclusivity, Starbucks paid property owners higher-than-market rates, the lawsuit alleges.

By the way, if you don't already know, the Stafford v. Starbucks case was settled out of court, May 2008, in Stafford's favor.

So there are some who see sbux as a bully with deep pockets, persuading the property owners to block out tiny vendors by waving lots of money around, and not as a victim of the sharky landlords. And for those who lost their solid businesses because of aggressive cluster-bombing, I'm sure they have no sympathy now that sbux has realized it has to reel itself back in.

Again, my sympathies to all of you who are suffering.

[David]

LOL, REALLY? Like somebody else on here has said, there is a Starbucks right next to the one near my Tom Thumb (which is owned by Safeway). They used to make the big bucks, but now that Starbucks has taken the corner street, the one in the store will become a Jamba Juice (which I have been told is also owned by Safeway Corporation, but I'll have to look into it).

I knew this would happen, and it is the right move from a business standpoint. This company needs to get back on track, and closing some of the closer stores. Now, they need to cut out on some of the "hardware" and they will be profitable once again.

[sickofiknewitwouldhappen]

It's getting really annoying to keep hearing "I knew this would happen"....

Yeah, we all did, as our stocks doubled and tripled and our company experienced record growth and success, our buisness model being written about and MBA students writing their thesis about us. Somehow we went along with it then...

[Cali ASM]

"My store's sales aren't meeting targets as is (we're still considered a high volume store though) but now a new store is opening up in two weeks that is in the same town, less than 5 minutes away, down the road from mine!!! And we already have 4 other stores in surrounding towns, all 10-15 minutes away from each other. How does this make sense??? And I bet my DM is STILL going to get down our backs on why my store isn't reaching our goals"

That's exactly what my DM does. My store too was impacted greatly by 4 other stores about 5-15 mins away and my DM swears up and down we can still tightly control our sales and customer count.

What exactly are the qualifications for DM's anyways. As far as I'm concerned, at least with the DM I have, they are in no way qualified for the job they're in.

[NYCSbuxMgr]

In NYC we've opened stores literally down the block from each other... and when a new one opens--it does cannabilize the old store's sales for a bit, but within a few months to a year--it normalizes and between the two stores you're still making more money than if you just left the one store. However--Real Estate is DISGUSTING in NYC and the landlords KNOW Sbux here make great revenue. Most stores sign 10 year leases. It's now been 14 years since Sbux has had a presence in Manhattan and as all these older stores have hit their 10 year anniversaries--the blood-sucking landlords often ask for double even triple the rent! Some really strong stores have been forced to close or relocate because financially it no longer made sense to stay there. Others have gone month-to-month not knowing their future until a deal could be hammered... IT's CRAZY what they ask per square foot! Literally HUNDEREDS of dollars--per square foot--envision that!

But I agree--from 2005-2007 there were some really bad decisions made--from real estate locations to the actual new store's design. The worst is the boroughs--they actually don't have nearly enough of a Starbucks presence--but most of the ones they have opened are just terrible business locations!

[StLouieDrip]

The NY Times article at the top of this thread said sbux would not comment for the article, so they went to others to get opinions about the store closings, including some anonymous ones who have a "relationship" with sbux. I guess that's why this is the first article in a long time where sbux is not playing the victim and making excuses for its bad decisions. Those who did comment acknowledged the economic crisis, but are still not blaming the economy. Instead they are blaming sbux's own bad judgment in over-zealous expansion, cannibalization, lowering the usual standards for selecting store locations, placing stores in locations that didn't as yet have store traffic, etc. And sbux originally offered to pay 2-3 times more than a property was worth, for exclusivity rights, in order to block out competition. I guess that's why no one in that article is even blaming the landlords for overcharging them.

[Joe]

nycbuxmgr: In NYC we've opened stores literally down the block from each other... and when a new one opens--it does cannabilize the old store's sales for a bit, but within a few months to a year--it normalizes and between the two stores you're still making more money than if you just left the one store.

That's the "strategy" that put Starbucks in this whole mess. Back when comps were exploding, they could get away with it but, now, the coffee beans have come home to roost.

Melody....

Cos has been there all along.

[Kelly]

In our sleepy suburb of Chicago, Park Ridge, we have two Starbucks stores on the same block!

I kind of wish that the teenagers would pick one of them to terrorize and leave the other one for the adults. Heck, we'd even take the little one if we didn't have to listen to screaming teenagers wrestling inside the stores.

[Mickey Blue Eyes]

With all this downsizing, I hope they don't close my regular sbux located in a sbux men's room. The music they play over the P.A. system sounds much better when reverberating off the little square tiles.

[Jj]

The newest store in the district is DT and making less then 10K/week. 2bg2qk=death

[Anony]

[i]Penny Stafford, believed to be the first small coffee seller to sue Starbucks on federal antitrust grounds, says she won't cave in.[/i]

It sounds like she had a good case, but why did she only considered the most coffee-saturated large city in the world to start her own coffeehouse? Either she is the cockiest person ever, or just wanted to make herself an "injured party" by trying to open a coffee store.

[Ryan]

plus, with the real estate agency deal its not a violation of anti trust laws, its just a no competition clause which is PERFECTLY LEGAL.

[StLouieDrip]

@Anony, so you think Stafford opened a coffee store just so she could play the victim? You might have a different opinion if you did some research, with an open mind.

I'm actually very glad Stafford was "cocky" enough to believe in her dream and not be intimidated by a gigantic bully, to stand up to sbux. In fact, I admire her. And she and her lawyer were trying to go class-action, so I'm sure she represents a few others who got too worn out from trying to fight it out with sbux. I read a lot of online articles about this case, and I learned a lot about how sbux operates. And I learned about them from direct quotes from them, not just from what others said about them. The idea that a huge multi-billion dollar company like sbux feels so threatened by one tiny vendor that they have to resort to unseemly bullying just astounds me.

And yes, I also like "cocky" people like Stafford who offer the customers other options besides the one reigning bully. Like someone else mentioned, sbux knocks out all the competition, and then offers that lousy PPR as the only option. How pitiful is that. (can we say "Microsoft"?)

The only problem I see with the Stafford case is that it got quietly settled. I just wish it had gone to court, so we could know more about the nitty gritty details of sbux's underhanded and petty style of bullying.

And in case you're interested, these are the articles I read...

Retail Notebook: Coffee seller says Starbucks sampled her customers

The Seattle Times: Starbucks sued over "unchecked ambition"

USA Today: Owner of small coffee shop takes on java titan Starbucks

Seattle Weekly: Bellevue Barista's Antitrust Suit Against Starbucks Heading to Court Coffee giant's leases may violate antitrust laws.

Seattle Weekly: Starbucks Antitrust Lawsuit Settled

And here are some SG threads that followed the articles...

Indie coffee shop owner says Starbucks tried to steal her customers

Coffee retailer accuses Starbucks of having an "insatiable and unchecked ambition"

Woman who accuses Starbucks of being a predatory monopoly gets nasty phone calls

Starbucks settles with coffee shop owner after judge says CEO Schultz would have to testify

@Ryan, as to whether it was "perfectly legal," the judge, Stafford's attorney, and lots of those who were consulted for their opinions, also saw reasons to question the legality of it.

Um, did I mention that it was quietly settled in Stafford's favor?

By the way, if you want to see someone who's REALLY cocky, just look at Howard.

[StLouieDrip]

@Anony, so you think Stafford opened a coffee store in Seattle just so she could whine and play the victim? Getting in over their heads, whining and claiming they are being victimized by uncontrollable circumstances, that is really more like what sbux does.

I'm actually very glad Stafford was self-assured and passionate enough to believe in her dream and not be intimidated by a gigantic bully, to stand up to sbux. In fact, I admire her. And she and her lawyer were trying to go class-action, so I'm sure she represents a few others who got too worn out from trying to fight it out with sbux. I read a lot of online articles about this case, and I learned a lot about how sbux operates. And I learned about them from direct quotes from them, not just from what others said about them. The idea that a huge multi-billion dollar company like sbux feels so threatened by one tiny vendor that they have to resort to unseemly bullying just astounds me. And cluster-bombing an independent, surrounding him with 3 stores all within a stone's throw? Why is such a giant so afraid of these relatively small-time vendors?

And yes, I also like "cocky" people like Stafford who offer the customers other options besides the one reigning bully. Like someone else mentioned, sbux knocks out all the competition, and then offers that lousy PPR as the only option. How pitiful is that. (can we say "Microsoft"?)

The only problem I see with the Stafford case is that it got quietly settled. I just wish it had gone to court, so we could know more about the nitty gritty details of sbux's underhanded and petty style of bullying.

I was trying to provide a list of articles about Stafford, along with the urls, but the spammer software kicked them back out. So here are just the titles of the articles that I've read. If you're interested use google to find the links.

Retail Notebook: Coffee seller says Starbucks sampled her customers

The Seattle Times: Starbucks sued over "unchecked ambition

USA Today: Owner of small coffee shop takes on java titan Starbucks

Seattle Weekly: Bellevue Barista's Antitrust Suit Against Starbucks Heading to Court. Coffee giant's leases may violate antitrust laws.

Seattle Weekly: Starbucks Antitrust Lawsuit Settled

And here are some SG threads that followed the articles...

Indie coffee shop owner says Starbucks tried to steal her customers

Coffee retailer accuses Starbucks of having an "insatiable and unchecked ambition

Woman who accuses Starbucks of being a predatory monopoly gets nasty phone calls

Starbucks settles with coffee shop owner after judge says CEO Schultz would have to testify

@Ryan, as to whether it was "perfectly legal," the judge, Stafford's attorney, and lots of those who were consulted for their opinions, also saw reasons to question the supposed "perfect" legality of it.

Um, did I mention that it was quietly settled in Stafford's favor?

By the way, if you want to see someone who's REALLY cocky, just take a good look at Howard.

[Myst]

Thanks for the info, StLouieDrip. I'm not entirely surprised that Starbucks would find the 'indies' threatening. They truly are competition due to the fact the majority of people working there are passionate about the coffee, where as too many baristas and the various managers think its 'just coffee' and the execution of their jobs reflects that thinking.

[Myst]

Thanks for the info, StLouieDrip. I'm not entirely surprised that Starbucks would find the 'indies' threatening. They truly are competition due to the fact the majority of people working there are passionate about the coffee, where as too many baristas and the various managers think its 'just coffee' and the execution of their jobs reflects that thinking.

[former partner]

I heard that all of the Store Development employees in the mid-atlantic are either already gone or being let go. ALL of them.

[sl8r]

Why are people blaming the landlords? I am a landlord of two Sbux and I paid above comparable properties around my locations because Sbux had signed leases with the developers!!! The value of the leases based on a cap rate is what the sales price was based on. Sbux got what they wanted, where they wanted and with all the restrictions they wanted and paid for it over a ten year lease - now they want to go dark for just loosing $2,500 per month in one of my stores in an area that is growing?? I don't get it - they will have to pay more per month per their lease if they go dark as opposed to losing just $2,500 per month which they probably will see a profit if they manage the store correctly and give it more time - which I hope they do because the new manager is really trying and the neighborhood does not want to see this location close...