Starbucks to close 600 underperforming US stores, cut as many as 12,000 positions

The company also announced Tuesday it expects to open fewer than 200 new company-operated stores in the United States in fiscal 2009. (Listen to the conference call.) Starbucks says the stores that will be shuttered are spread across all major U.S. markets with approximately 70 percent of them opened since the beginning of fiscal 2006. The company says it will try to place workers from closed stores in remaining Starbucks. (Wall Street likes the news; at last look, Starbucks' stock was up 6.5% in after-hours trading.) (Read the AP story   || Read Starbucks' press release || Read Starbucks CFO's prepared statement) 

Comments

[Grim Reaper]

I would have thought more stores would have closed. So if each store has approx 20 f/t p/t partners, that equates to 1,200 partners affected. Wonder what impacts the cuts will have on the ssc!

[Pat Nerr]

gawd... what a mess!

The SSC layoff announcement is next.

[Joe]

uh, grim, doesnt 600 X 20 = 12,000? not 1200?

[Brew Master]

The Grim Reaper is very bad at math.

[Jj]

Maybe this is what the policy I heard about was about? The 12,000 people that work at Sbux that can't work over 20 hours a week?

I wonder when they will wise up and get rid of those ridiculous licensed stores?

All steps in the right direction. I always thought they were getting to BIG... and with a net loss of 400 stores in the US... that equates to 5% less company owned stores in the US. Hopefully they will open even less in FY10... focus outside the country, and let everything catch up...

all steps in the right direction.

[Joe]

Pat, Im sure youre concerned about the partners who will be out of work. Still, this needed to be done. Starbucks has flown on the wings of future growth/endless expansion for far too long...time to come back to earth and reality.

[Grim Reaper]

Ahhh, yes my math sucks. Still, that's a lot of partners affected!

[upod]

There's an hour long conference call scheduled in the next half hour (4:30pm central) to discuss the closures and layoffs.

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

[Blindsided]

Do the stores that are being closed know that they're going to be closing? When do they drop the news to them?

[Melody]

This seems like the wrong move! Get rid of 600 licensed stores and I'd be much happier.

That press release clearly says that 600 company-operated stores are going away. I'm very sad about this.

[truth]

Never saw THAT coming....

People. If you are not diversified, you are insane.

Isn't it great how they waited until AFTER the quarter was over to make the announcement.

And so many of you said the investors weren't running the show.

Like I said, there will be more moves prior to Aug 11, which is the day Nelson Peltz has to announce how many shares he bought last quarter.

They are drinking your milkshake.

[LEGENDARY OR BUST]

How many stores are in total in the US that are company owned at this point? Wikipedia says 8,000. Is this still right? So, every 12th store or so is closing?

[upod]

Unfortunately, I think it's the right move. My guess is most of these stores are in Florida and California in areas severely affected by sub prime. It really sucks for the affected employees, but you just can't operating these stores if they're not profitable.

[lattegal]

YES! We need to get rid of license stores! Too many, and lack the "REAL" Starbucks experience.

[Pat Nerr]

correct Joe... I hate to see people lose their jobs... It makes no sense to me to remove the lower level employees and keep the overpaid execs who perpetuated the mess in the first place. Behind bad leadership is a bad leader...

[upod]

My guess is the reason their closing company operated stores versus licensed stores is they'll save more overall due to the health insurance premiums they will no longer have to pay for these 12,000 employees.

[LEGENDARY OR BUST]

I am also guessing that the bulk of the stores are in areas of lower income (urban and south) and in areas where a lot of well-paying jobs are being slashed (think GM and Ford layoffs, i.e. industrial states such as Michigan and Ohio)

[upod]

Actually, I should correct myself. I realize not all 12,000 employees are covered by the health insurance, but I still think that was a huge factor in closing company operating stores versus licensed stores. Licensed stores are pure profit for Starbucks.

I agree with Truth, Peltz has the executives on edge ( think Icahn and Yahoo )

[m]

getting rid of a few overpaid upper level people doesn't won't make slow/underperforming stores any more profitable....it would be a "nice to have" but its not going to happen...

how is it that Sbux somehow is the bad guy right now...take all the emotion out of it....low/no profit stores need to be closed

[upod]

conference call has begun

[ccc]

UPOD - the reason they can't close the licensed stores is because starbucks doesn't own them, hence the "license".

[upod]

currently just going over legal mumbo jumbo.

[upod]

CCC - I'm sure Starbucks can revoke those licenses whenever they wish. Starbucks owns the licenses.

[lattegal]

This is very bittersweet. Hate to see people losing their jobs but if stores are not performing where they need to then they are draining the company. So it's good that Starbucks is closing low performing stores. Good for stockholders.

[upod]

Peter Bocian is going over criteria used to decide which stores to close.

* Stores closures represent 19% of stores open from 2006-2008

* Closures will take place in all US Markets

[Verismo Wiz]

Tomorrow's shift: "Are you guys closing? I saw on the news last night that you were?"

[upod]

Bocian: 2009 Company Operated Store openings will be less than 200

[priorities]

when do they tell us which stores will close? mine's newer, and now i'm worried we'll close before we even really get started!

[upod]

Going forward, there will be much higher scrutiny of stores so they can get an earlier jump in more closures are needed

Believes closures will improve profit potential.

Q & A has begun.

[lEGENDARY OR BUST]

I wonder what the breakdown of cafe-only vs. drive-through is going to be. In many markets, drive-throughs is where the majority of the business is at these days. Our is about 75% drive-through...

[upod]

Bocian: Stores that are closing "were not profitable:

Confirmed all stores closing are company operated.

Represents 8% of stores.

Committed to looking at stores at an ongoing basis. Currently, there is no watch list for future closings, but they will be watching stores closely for performance

[upod]

Attributes closures to:

* Bad Economy

* Stores didn't perform like business case expected

* Proximity to other stores.

* 600 stores closing are close to other stores

[upod]

Over 50% of stores in 2006-2008 were drive-thru

Will not give specifics on which stores closings are drive-throughs

[upod]

Correction: Over 50% of stores *OPENED* in 2006-2008 were drive-thru

[LEGENDARY OR BUST]

I am pretty sure I can figure out which store is going to be most likely closed in our district. It meets all of the criteria -- and there are stores like a mile away in each direction...

[upod]

Has reiterating that the stores that are closing were not profitable.

Expects some revenue from the 600 store closings will move to other stores

[truth]

You close the drive-thru's when they are competing with the company that is taking you over.

Same logic applies to the company store v licensed store.

[upod]

Store closures will help company meet term earnings goals (2009-2011)

Closures will have no impact on release of new Products

[lEGENDARY OR BUST]

Truth, your last comment is hard to understand. Re-phrase, please

[upod]

In the process of communicating with partners the schedule for closures ( starting in late July to mid 2009 )

[upod]

Company currently has no plans to franchise. Company still wants to operate their own stores.

Will continue license stores.

[Mung Bean]

I still don't understand why anyone at SBUX considered 25% cannibalization of revenue from existing stores to be acceptable when deciding to open more stores.

A gamble like that assumes explosive, neverending sales growth. And by 2006, the US economy was hardly a juggernaut and the real estate markets in CA and FL were starting to stagnate. The writing was on the wall.

Just shaking my head in disbelief... most of these 600 stores shouldn't have been opened in the first place.

[upod]

Bocian: Company is marching towards delivering earnings targets from 2009-11 with revenue growth.

Reminder Earnings call with be on July 30th.

Conference Call has ended

[Barista of the Millennium]

Does anyone think that we should assume that if our store is getting the new espresso machines that we are safe?

[lattegal]

I wouldn't assume anything right now. Talk to your SM, they should have some idea if your store is one of the ones that will close.

[Mung Bean]

BotM,

It sounds to me like the paint was barely dry on the walls of some of these stores that they're closing. I wouldn't read anything into machines.

Look at your sales numbers. If they're solid, and especially if they look a whole lot better than a nearby recently-opened store, I suppose you should feel some measure of comfort.

[upod]

I probably wouldn't consider yourself self. It's not hard to move an expresso machine. Plus, I guarantee the final list of which 600 stores to close probably happened within the last few weeks.

It boils down to this: If your store makes money, your safe. If your store doesn't make money, you're not safe.

Like the CFO said, all stores that are closing are unprofitable

[upod]

sorry for the horrible spelling everyone

[SBUX MNGR]

I just got a call from my DM, we are having a meeting/conference call in half an hour. My store is solid though. We have been doing higher sales then expected our first half year. We are in a less saturated side of town.

[lattegal]

UPOD,

But what about stores that are sandwiched between other stores and are just making it over their sales goals? I wonder if these are considered "profitable"?