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

[Area 10 question]

Where is Area 10?

[barista lane]

PEOPLE!

12,000 partners ARE NOT being let go. Baristas are going to be relocated. I'd bet SM's and ASM's are probably going to have a tougher time, but the bottom line is that 12,000 partners ARE NOT being fired.

Please, please stop saying that.

[ascruggs]

Starbucks has a media relations department that you can contact for comment. All partners are required to forward you to them for info and are not authorized to speak to the press on the company's behalf. Please be respectful of these partner's jobs and contact media relations (press@starbucks.com)"

I love this from media relations! I'm a journalist and a former Starbucks customers. It's clear from the postings, though, most of these folks are terrified. I definitely planning to read this board on Wednesday. My sympathies to folks who are facing the layoffs. It's frightening. What is media relations going to say to/for you after the axe falls?

But I know why Starbucks is losing money. I live in Ohio, where the economy sucks. I'm self employed and had to make some decisions. I quite going to Starbucks because I simply couldn't afford the coffee.

A Whole Foods is across the street from my favorite Starbucks. If I take my cup to Whole Foods, the coffee is 75 cents. If I take my cup to Starbucks, I get a dime off the regular price.

Guess where I go most mornings.

[ascruggs]

Please overlook my grammatical and spelling errors. It's been a long night.

[SM]

its time to buckle down and be a owner of your business for so long we relied on people comming to SBUX just because we were SBUX now we have to work at being good and be a active team player rather than sitting on the side lines and watching. I feel bad for SM's who don't even know how to read a P&L and don't understand profitability, those are the stores to watch out for.

Be a responsible business owner and take pride in what you do.

[truth]

I don't see how anyone can read my comments and come to the conclusion that "I'm in it for myself."

Along with Pat Nerr, we are the ONLY ones here who have consistently warned (correctly) about layoffs.

If we were in it for ourselves, we'd just sit back and buy options and wait quietly for more layoff announcements and cash in.

Opinions are great, but people should really stick to what they know and truly understand. (That's what got this company in this position in the first place.)

That's why I don't ever talk about the taste/quality of the drinks, etc (although 'lemon packets' do seem odd). But there's no one here who follows this stock more closely than me. And I'm telling/warning you that there's lots more bad news to come.

Anyone notice that some of the cheerleaders have disappeared from here? The SEC has rules against companies (and their proxies) from commenting in the time-frame around 'material events'. Very telling. Pretty easy to play 'spot the PR hack'.

But they'll be back here screaming at me in no time.

In the meantime, good luck to everyone tomorrow and in the coming weeks. Don't panic and get good 3rd party advice.

[truth]

To believe that anywhere near 12k people are gonna be 'relocated' is simply foolish.

I'd be surprised if 5% actually get moved. Besides, what's the incentive? A new hire is cheaper than a veteran.

It's all about cost these days.

Some of you are in total denial.

[formershift]

Actually, this is probably all part of Howard Schultz's "transformation agenda". I bet this is only the beginning...probably several more rounds of cost cutting by the end of summer.

I worked for Sbux for 9 years, nearly all as a shift, before I separated this past March. Talk about good timing.

Personally, if I were a partner, I would just look for a new company.

[espressoblend]

I'd be surprised if 5% actually get moved. Besides, what's the incentive? A new hire is cheaper than a veteran.

That is a fact right there... and one I did not think about until you mentioned it.

What incentive DOES SBUX have to relocate these folks? I can see the incentive to TELL everyone they're relocating them because it's warm and fuzzy PR, but to actually do it?

Yeah, I'd imagine that 5% of the 12k that are on the chopping block is a legit number to expect to retain their jobs.

I'm also curious, as well, how many morewill be let go in the SSC... I hear the labor is pretty tight and folks are doing multiple jobs across many departments right now. Basically, it's all hands on deck, do what you can... I'd expect a few more layoffs in the SSC, but nothing too drastic.

Just a guess.

[truth]

Sooner or later, some of you should be thinking about lawyers and grouping together to force them into better severance packages. There's power in numbers. You shouldn't just roll over on this.

The investors won't like a class-action lawsuit one bit.

[SM]

I agree with cancelling leadership, think of the jobs that can be saved!!!
Unless Howard plans on having everyone work on houses and uses the trip as a tax write off for charity work. Howard you once said you lived by the message of the poem "Man in the Mirror". My question to you, Howard is do feel good about what you see in the mirror? Where were you when the company was heading down the wrong path? Well, at least Howard won't have to worry about finding a job to supoort his family!

[SM]

sorry for the poor spelling, it's late and it's been along day!

[truth]

Finally figured out WHY TODAY.....

The judge in the Sonics case makes her ruling tomorrow at 4pm. If the city loses, Seattle loses its basketball team, and Howard Schultz becomes Public Enemy Number One.

News usually gets released in groups. This explains why the layoffs were done today.

Tomorrow if the city loses, the Sonics are gone and Howard is a villain to everyone (it's called 'the big bad' theory in PR--get ALL the bad news out at once).

If the city wins, the team stays for awhile, and Howard is a villain to only 12k staffers and it's sort of a 'push'... laid off 12k but saved the city it's hoops team.

[jkh]

There is a difference between being optimistic and a fanboy/girl.

There is a difference between pessimistic and a troll.

So far, I see more blunt trolling than "telling it like it is".

[Vicki Verona]

I can't believe this. I'm actually in tears right now.

[SM]

JKH,

Say what you will about blunt trolling.....bottom line is thousands will be out of jobs and in for some very hard times. And for the SBUX executives...they'll still be riding around in their fancy cars and going home to their million dollar houses.

Is that troll enough for you? You really need to come down to reality!

[lattegal]

Washift -

I never mentioned that they weren't promoting SM's. I heard from a SM that due to all of the changes that there was just a hold on promoting ASM's right now. Districts are changing, people are moving around, seems like things need to settle down to even know where an ASM would be needed. I'm not in the Washington market so I don't know if that would make a difference or not.

I like to think that if it's suppose to happen it will. No need to spend time worrying about things.

[lattegal]

Sorry, but as it's stated on other posts, I'm sure that Starbucks will do it's best to place the partners, but they won't find jobs for 12,000 of them...remember the company is cutting back, and salaries & benefits are expenses. I think it's actually nice of Starbucks to even offer a severance payment to full and part time partners who aren't placed at other stores. I've never heard of part timers getting severance pay. Plus it's better than what Enron employees got.

[Fancy Barista]

Interesting that this comes now. After 10 years as a barista with Starbucks, last month I "moved on" to a new career. Starbucks has been good to me, allowed me to work through school, provided me with health care and an ongoing buzz through it all. This morning I called Fidelity to see about collecting on all the bean stock I've accrued through the years. All this time, I've been told that this is such a wonderful "perk" to working for the company, but with stock so far down, it's worth nothing at all.

I've heard whisperings that in certain remote markets, many stores will have to give up their assistant managers, and duties will be redistributed to supervisors. Where I live, rumor has it that only 1 store in our town will be keeping their ASM. That leaves 6 ASM's to be demoted or relocated,and that isn't even considering partners from stores that might possibly be closed. If this is a widespread theme, more partners may be affected this year than we think. Just imagine, you are a newly hired/promoted ASM, finally making ends meet with your salary, starting a family, buying a car... What happens when you suddenly are forced to relocate your family 500 miles or be demoted to supervisor? Tough decision.

[Accountability Counts]

Sympathies to all in these uncertain times.

Curious what other cost-cutting measures have been demonstrated inside SSC to balance the field layoffs?

Is SSC still paying for free personal training for employees via Howard's investment in Kinetix? What about performance bonuses? Any insights anyone? Where's the accountability at Senior levels?

[truth]

lattegirl- "Better than Enron" is not really the best rallying cry.

[hmmmm]

Fancy Barista -

If I understand Bean Stock, it's stock that is given to you at no charge so when you are eligible to cash it in it's really a bonus for you. Yes, you could say that you "work" for it but believe me there are not very many companies that give this type of benefit to full time and part time employees. Yes, the stock price is down, but remember this is essentially free money to you.

[lattegal]

Truth - We'll maybe not, but my point is that at least Starbucks is trying to be somewhat considerate to their partners. Most Enron employees lost pretty much everything...their life savings and they didn't get any severance pay of any type. This isn't an easy thing for anyone to have to do or go through.

[Joe]

Why are there people talking about Starbucks losing money as if that's the catalyst for the stock going in the toilet and the closing of 600 stores.

Starbucks is quite profitable. They just arent as profitable as they were in previous years. Or as they promised they would be. The stock initially got hammered because Starbucks went from a hard charging high growth company that seemed to have no limits on its growth to just a regular company with minimal growth prospects. And all of that growth stuff was just an illusion and we're seeing the fallout now and will continue to do so over the next few months. Hell, Howard and Pete Bocian both have all but said 2008 is nuked...all you hear about is what will happen from 2009 onward. And the person to blame for all of this is Howard. There is no way he wasn't part of the strategy over the past ten years. At least he's biting the bullet and doing what needs to be done now.

[truth]

lattegirl- You are right. It's a bad place for lots of people. That's why I'm always cautioning people to diversify and be very careful.

[lattegal]

But you know what TRUTH, with this move I can see the stock prices going up. It's a bad move for partners, but for the company as a whole this is a good move. Why should we have 600 stores that aren't profitable?

[espressoblend]

Why are there people talking about Starbucks losing money as if that's the catalyst for the stock going in the toilet and the closing of 600 stores.

You're looking at it all wrong.

The investors have started to influence the executive management to make these decisions. The investors are not happy with the current state of SBUX's profitability (it's not profitable enough) and THAT is the catalyst for the stores closing. The low, low, low stock price is influencing investors to complain to executive management, which in turn is closing the stores. That's that.

[P.R.I.D.E.]

Lattegal, TRUTH sits around all day and has nothing better to do than trash our company and our partners. I used to fall for it, and once in awhile he still gets me to bite, but I choose just to conclude that he/she and I look at life from two different pair of lenses.

I kinda wish we never went public, to be honest. There is a great article in this week's Time magazine regarding the owners of REI and Whole Foods, that speaks to the owners taking an employee first approach. It reminds me that great companies can appreciate and value their employees, and it can be demonstrated as a successful business model.

Of course, the biggest threat to the model are the gimme gimme gimme investors. This is the first public company I've worked for, and trust me, it will be the last (should I get the pink slip)

Here is a link to the Time article if you're interested:
http://www.time.com/time/magazine/article/0,9171,1818183,00.html

For what it's worth, Lattegal, I appreciate your positive perspective. It's refreshing, and I'll continue to advocate that it is the selfish investors who have the biggest guns pointed at us...

[lattegal]

So you think it's just the investors who aren't happy with the current state of SBUX's profitability? Seriously? You don't think that the management team cares about that too? WOW. Find it hard to believe that a CEO wouldn't care about this unless investors spoke up.

[lattegal]

P.R.I.D.E - I'll take a look at the article. Thanks!

[J.P.]

Howard, you are a worthless piece of trash. How could you...? And after all that I and countless other store managers have done for you... this is the payback that we get? I've seen too many ASM's be demoted for no reason lately and all you can do is sit there and think of "excuses beyond your control." What a piece of work you are. I hope you burn in hell with your 3rd place. THE END.

[spence]

The reason Starbucks is closing stores is because we have too many of them. Fuel is high, people aren't spending as much on mochas as they used to and we no longer need a store on every street corner.

[Jen]

Howard... what have you done?????

*weeps*

I've got 3 kids to feed and I just got demoted at my store yesterday. *Wonders why now...*

Do you care???? Do you REALLY, REALLY CARE? I bet my DM doesn't.

[M]

Holy crap. So howard didn't care -after all- *shrugs* What a surprise!!! He cares more about investors and making money than his partners. isn't that against what we're trained to believe in???? Profitability comes LAST from what I remember.

[lattegal]

P.R.I.D.E - I read the article, thanks. Not sure if I totally agree with it and here's why. First, I think that companies need to be held somewhat accountable (as much as they can be) and stockholders do that to some degree.

I've been working for 28 years at various companies, retail and other places. From what I've encountered Starbucks is actually a great company and I know people will argue with this because emotions are high right now, but they actually provide many great benefits, even for part-time employees. I have medical, dental and vision benefits at very reasonable prices for me and my husband, I have a 401K, and get vacation hours and can purchase stock at a reduced price, plus stock is given to me (stock may not seem so great right now but I have faith that it's going to get better). I have a good discount and I get free coffee every week. With the entire package I get at Starbucks I think I do pretty well there. Do I make $40,000 (cash) a year, no, but I love what I do. I get to work with amazing people and meet amazing customers.

As a partner (employee) I feel that I own part of the company, and actually I do since I'm a stockholder. I want to see this company succeed, even if I lose my job tomorrow.

You stated that investors say gimme, gimme, gimme. But you know employees say that too. People always want more, more, more! And it's not going to matter if the company is private or public. There will always be someone there with their hand out, complaining that they want more.

[Supposed Eric]

Other companies have huge headline-getting layoffs like this and it seems that lots of the laid-off, even ones with offers of severance packages, end up finding something within the company. I think, at least for this round, that's what's going to happen at Starbucks. I was in two layoffs at a big company with 4-figure or 5-figure head count reductions, supposedly, and ended up throwing away the severance package in one case because I got a new assignment, and in the other case I turned down the new assignment to go to another company.

Good luck to all of you.

[Darleen]

Good Morning All,
Well, all I can say is I wish all of you the best. I hope that you aren't sitting around waiting for the ax to fall. Very sad day all around, but keep strong and hope for the best. My heart goes out to all who will be affected by this.

[BarisTundra]

Anyone know if all starbucks north america stores are on the chopping block, or just USA ones? ( I'm in Canada, my store meets all the criteria )

[cc]

I've read each of Truth's comments in this section. I don't see how he/she is being less than lucid and factual. I notice that the objections are personal in nature and don't address the points Truth makes. Seems to me - a non-employee and a non-customer - that if there is bad news to be told, then it ought to be told. If Truth is making unfactual claims, then point them out. I'm someone who's following the SBUX drama for other reasons: I almost opened a coffee shop last year and still follow the industry's news. There are economic factors at play here that have nothing to do with the SBUX experience, culture or game plan, I think.

I do feel for those losing their jobs, for sure. I don't wish such things on anyone, let alone the very (undeniably) committed people who post here. Would that all companies had such loyal workers. All the best to you.

[Darleen]

I do feel for those losing their jobs, for sure. I don't wish such things on anyone, let alone the very (undeniably) committed people who post here. Would that all companies had such loyal workers. All the best to you.

Very sweet sentiments, thank you. No sleep for me last night, will be at my store at 5am to address any concerns my team may have. I need to be strong for them, I don't want them feeling too stressed, wish I could shield them from this, but I can't. Good luck to all of us!

[Anon]

SBUX really should have notified their "partners" before the press release. Honestly. If the company put as much respect into their employees as they demand of them, maybe things would be different.

SBUX promises to do it's best to relocate baristas from closed stores. Well I'm screwed. There are no openings in my district. I tried to transfer to another store a month ago and was told there weren't any openings and probably wouldn't be any until fall. I put 10 years into this company and where does it leave me?

Oh and severance pay my ass! One month's pay is nothing. When my father was let go from a factory years ago because it was closing they paid him 6 months' salary as severance.

Good luck finding new jobs my fellow baristas.

[Jamie]

Why would you EVER have bought the line that you were "partners" anyway? It's like people at Sam's Club actually believing that they are "associates." Partnership implies that there is some kind of equal power on both sides of the equation or that people have equal power to contribute on both side of the equation. When your contribution is making coffee for a living at slightly more than minimum wage, you are not a "partner," you are a semi-skilled-at-best, replaceable worker.

As Ford did in the 1920s with its $5 day, Starbucks really brainwashed its workforce into thinking that the company cared about them rather than caring foremost about shareholders and the bottom line. But at least Ford's workforce was intelligent enough to ultimately unionize. Not you guys.

[Ron]

Ladies & Gents..

I stumbled on this blog a few weeks ago.. think it's awsome, and I think a lot of people on here may be Starbucks Insiders.

I'm not, just a coffee drinker from W.Va.

You need to ask yourself if this is really surprising. I do not think it is.

Over the years I've noticed a drop in service around here and other places.

Example- at one of the Starbucks (outpost) on the Turnpike here in WV (I64) I stopped in and they were out of the "Sumatra" - my fave. The manager or whomever in charge could not understand the simple process of opening one of the many bags on the shelf for retail sale to make another batch.

It is that kind of common sense that this company needs to overcome to get back on track.

I love the coffee.. hope my closest store doesn't shut down.

[Tall Drip]

It's about time. This move needed to be made - frankly, I don't think it went far enough. If you live in any kind of major metropolitan area, I'm sure you can rattle off several store locations that should not have been opened in the first place. Even the greenest of undergrad business students understand the concept of cannibalization of sales. It was pretty obvious in this case, which to me speaks to the sheer arrogance of upper management.

[Mickey Blue Eyes]

Oh no! Does that mean they're going to close the Starbucks located in the men's room of the Starbucks?!

[espressoblend]

So you think it's just the investors who aren't happy with the current state of SBUX's profitability? Seriously? You don't think that the management team cares about that too? WOW. Find it hard to believe that a CEO wouldn't care about this unless investors spoke up.

Posted by: lattegal | Jul 1, 2008 10:46:13 PM

Until yesterday, I thought it was ONLY the investors who cared about this company turning a profit. I don't think Schultz would have taken care of this before the investors brought it up. He, very clearly, was doing anything and everything NOT to take care of this. Some points to consider:

1. Buying niche businesses that don't add to your whole core and produce a profit (either because the new business has a ton of cash on their balance sheet or because they can produce a ton of cash for your company very quickly) is not something you do in a bad economy. Especially once you have already started laying off people. This is not something that financially okay to do during this time. Clover was a great idea, just a bad time to buy.

2. Holding gigantic parties in New Orleans for almost the amount of people you're laying off. Inviting 10,000 to New Orleans for a get-together is not prudent now. This is not 2000. That costs the company serious cash, not only for the space to host the event, but with catering, putting folks up in hotels, etc. This is not cool, nor is it financially prudent. Holding meetings for your staff where there is no short-term, tangible benefit to your company is another thing that is not okay to do in this economic condition. It's very self-serving and does not mesh well with holding an obligation to have this company be as profitable as possible.

3. Holding "training" events that are nothing more than PR stunts is not okay to do. The company admittedly lost a bunch of cash (via payroll) and opportunity to make cash (via lost sales due to closing stores down for two hours). This company was in no position to do this at all. Most companies would train on the job or fire those who didn't "get it" after a short while. Not SBUX. They needed to shut the place down to teach their folks how to press a button. In the end, it cost the company serious cash. Plus, it wasn't the best long-term PR in regards to the effect it had.

4. Spending cash on stupid roll-outs that have no impact on their business. What? So they tried to compete with Dunkin' by introducing PPR? They could have done it with less hype and less cash spent. Opening a "mock" SBUX in NYC was just dumb and a huge waste of cash. Plus, the amount of labor spent on this promotion was ridiculous.

5. Ending promotions that actually make cash for the company. Why are the sandwiches leaving? There has been post after post from baristas who, while they hate them, realized and understood these made quick cash for the company. The customers literally eat them up, yet they're leaving in September... It seems like Schultz has a personal vendetta against these little guys. I'd love to see what percentage of sales these sandwiches make up in a typical store. Now multiply that across all stores and you'll see a huge loss in revenue.

So, yes. Schultz was not addressing profitability at SBUX. It does seem like the investors finally had enough, hence the recent moves to find ways to save money and return this company to profitability.

Schultz seems like he is far more content with sticking his head in the sand and pretending this is 1999 or 2000 where SBUX could make no wrong move and everyone was flushed with cash to spend on lattes. It's time someone held HIM accountable for this company (since he wanted the job back so bad anyway) and this is what needs to be done.

I will also point out that these things (and I'm sure there are many, many more) are all things that cost the company a LOT of cash. A LOT. Think of how many jobs could have been paid for by diverting the cash spent so haphazardly on these "promotions" to something like payroll. Think of how many jobs could have been saved, even if it was short term... Kind of sad Schultz sold out 12,000 employees for a cup of PPR, a Clover machine, cheesy PR events and an opportunity to kill the breakfast sandwiches. But "Uncle Howie" loves you all anyway... will you still love "Uncle Howie" when you don't have a job at SBUX anymore?

Again, sorry to all the folks out there who are personally affected. It's sad, yes, but it's business.

[Borat]

Espressoblend, that is a very well thought out post and I couldn't agree more. What do you think are the long term prospects regarding stock price? I feel that 15 is too early to buy as their balance sheet could turn negative later in the year. Any opinion on that?

[thatgirl]

Just to throw my 2c in re: the licensed stores (since that's what I know best) -- my Target Sbux was doing great, consistently among the top 10 in the Chicago area for Target Sbux (and there are a lot of Targets AND Subx in the metro area), and now there's a company-owned store opening *in the parking lot* of the shopping center. You can see the drive-through from the window.

And while I can understand the argument that licensed stores are diluting the brand ... why open a new store in the frigging parking lot of the perfectly good licensed store, which Starbucks corporate isn't even paying the payroll of? Why not down the road a few blocks? It's one of the busiest retail stretches in the suburbs, there's got to be a better place for it!

Of course, now I wonder if either location will last -- that's some bad timing on opening a new store.

[Orbitron]

After hearing the news and reading the comments, three things stick out to this "heavy user" of Starbucks products:
1) Starbucks did a huge disservice to their partners in not breaking the news to them before the general public. I work for a huge company and we get a company-wide voicemail at least an hour before the press release goes out.
2) This was extremely necessary. The state I live in, Michigan, has been in a recession for the past three years--I along with everyone else I know in my middle-class suburb have switched from daily Starbucks trips to at best, once a week.
3) Starbucks needs to offer discounts. The Starbucks Rewards program is not enough. Coupons and sales aren't necessarily evil. They have no problem seeling christmas ornaments for half-price in January, why not half-priced coffee? Isn't the goal to get people in the door?

[baristajack]

DHARMACUP

thats ridiculous to state getting rid of the drive-thrus, i work in a drive-thru store, yesterday it downpoured. how much business do you think we would have done if people had to get out of their cars..I'll tell you ,NONE.unfortunatley life is different now, people like the fact that they don't have to take 3 kids out of the car to stop for a coffee.get giftcards, buy beans etc.. in the mornings we have a line of customers around the building. so without that window, people would just go up the street to dunkin donuts. I do agree about the high fructose beverages,even though there are too many of them.THEY SELL.. But I strive to connect with customers behind the wheel,just as if they are standing infront of me, and it can be done..