Wednesday, July 09, 2008

Starbucks plans to close 600 U.S. stores

During the days when people were willing to buy $4 lattes, Starbucks was a coffee “mecha”. But it is obvious that these days are over. On July 1, 2008, Starbucks Corp. announced it is closing 600 company operated stores in the next year, due to the US economies downward spiral, that had hastened the pain caused by the companies own rapid expansion. After the announcement of the future of the closing stores, stock prices jumped 72 cents. 70% of the stores that are planned to close were opened in 2006. The closing of these stores won’t be free, 12,000 workers will be unemployed. Starbucks will have to pay $8 million in severance costs and a total of $348 million in charges related to the closures. Pete Bocian, Chief Financial Officer, says 25-30 % of a Starbucks shop’s revenue is cannibalized when a new store opens and that the closure should help return some of that revenue to the remaining stores. Although the company is closing 600 stores this year, it plans to open fewer than 200 in 2009, and fewer than 400 in 2010 & 2011.


Jessica Hutchison said...

I had no idea that this was going to happen to Starbucks, so reading this article was very interesting. First of all, in my neiborhood alone, there is 3 Starbucks. Is it necessary to have so many in one area? I think 1 store in a 5 mile radius is fine. So it actually doesn't surprise me that they are closing some. It seems to me they built way more than they needed and they are the ones that did this to themselves. I do think the economy has enfluenced this decision because I am sure in the end by closing some stores, yeah they will owe money in the short run, but in the long run they will be better off.

amy.soul said...

I too found this article very interesting. It goes along with the article posted about decreased demand for luxury TV's posted back in June. It seems that in the wake of high energy and food prices, demand for many luxury items is decreasing. I consider a $4.00 grande caramel machiatto a luxury item. I lived in Vancouver, BC, Canada for six years and the number of Starbucks in the city and suburbs was mind-boggling. On one of the main streets in Vancouver proper there was an intersection with a Starbucks on all four corners with more on adjacent streets or just down a couple blocks on the same street. In the current economic situation it would seem that the demand for Starbuck's coffee is highly elastic. Consumers forced to watch how disposable income is spent, are considering cheaper substitutes to Starbucks. There are many good brands of coffee you can just make at home. And consumers must view a cup of Starbuck's coffee as a luxury item not a necessity. It will be interesting to see how Starbuck's future expansion plans are altered in response to these store closings.

Nathan Eschbaugh said...

I have never been a huge Starbucks fan and I have to say that I always though that the idea of the four dollar coffee was ridiculous. But obviously someone enjoyed it enough to spend such money on the luxury. It does not surprise me though that it seems to be coming to an end as people have to cut out more and more luxury items in there life to be able to afford the basics. The closing of the stores is an unfortunate thing because of the loss of jobs with hurts the economy even more.