News

In a reversal of its ‘One on every corner, two in the middle of the block’ policy, coffee giant Starbucks is finding out that George Bush’s stimulus package didn’t stimulate enough taste buds to continue buying overpriced coffee beverages.

The company announced it will be closing over 600 stores this year, to which I can only say, ‘Hooray! It’s about time someone woke up and smelled their coffee!’ Not that it is bad coffee - but seriously, you can’t fool all of the people all the time.

Starbucks Corp. (SBUX) said it will close 600 underperforming company-owned stores and further cut its U.S. expansion plans for the fiscal year starting this autumn amid growing economic uncertainty heading into the summer.

The move cuts even deeper into already reined-in expansion plans at the struggling coffee giant, which is in the midst of a sweeping restructuring. Tuesday’s announcement compares with its April expectation of a net “less-than” 400 new U.S. stores each year from fiscal 2009 to 2011.

Shares were recently up 2.4% at $16.

The company said the closures, which are scheduled to take place over the remainder of fiscal 2008 and the first half of fiscal 2009, are part of the strategy shift it began in January.

Starbucks said the stores are located in all major U.S. markets and that 70% of them opened in the past 2 1/2 years. The company said that, while jobs will be eliminated, it expects to move some employees to existing Starbucks locations. It expects $8 million in severance costs. The company said the 600 stores include 100 stores already slated for closure.

Starbucks expects to record some $200 million in write-downs this quarter as well as $120 million to $140 million in lease-termination costs in the fiscal fourth quarter and first half of fiscal 2009.

Chief Executive Howard Schultz returned to the CEO post in January to get the company back on track, and immediately announced 100 store closings and a slowed pace of expansion.

Several years of rapid expansion caught up with Starbucks last year as U.S. store traffic slowed, shelves inside stores became cluttered and two price increases drove away some customers. Starbucks launched its first national television advertising campaign during the year-end holiday season, but that wasn’t enough to help the Seattle chain lure more customers into the stores.

First it was Juan Valdez needing more money, now Starbucks has forced up the price that people are willing to pay for coffee. Well, there is a backlash starting, and it will continue until some reason comes to pricing of many things.

So many people refuse to see that, in a bad economic situation, frills with fancy names are the first things to go. (besides I’ve been there enough times with friends to see that their music selection sucks too - so that’s another reason to never darken the doorway) Does anyone publish figures on the skyrocketing popularity of the coffee at AM-PM?

-

Technorati Tags: Starbuck’s - cutbacks - 600 store closings - economy - stimulus package - coffee - cup of joe

Related Articles: