January 29, 2009
With the economy in the tank, one place consumers are cutting back is on expensive coffee. Starbucks has announced plans to close 300 more stores and layoff 6,700 employees in the wake of disastrous first quarter earnings.
For the 13-week period ended December 28, 2008, Starbucks reported net income of $64.3 million compared with reported net income of $208.1 million for the same period a year ago, a decline of about 69 percent.
The move follows the announcement last summer that the coffee would close 600 of its stores, as the declining economy began to make its presence felt.
"In the midst of the weakening global consumer environment, Starbucks is following a well-developed plan to strengthen our business through more efficient operations and by preserving the fundamental strengths and values of our brand," said Howard Schultz, chairman, president and CEO.
Corporate platitudes aside, Schultz might want to pay heed to a rising tide of consumer discontent. As times get tough, consumers become more demanding of premium service when they're paying what they consider a premium price.
"When I pay dearly for my rationed 2-3 lattes per week, I expect to have good service and a correct drink," said Bev of Fortville, Indiana, in a recent complaint to ConsumerAffairs.com.
She was miffed because of a long wait and an incorrect order: "A lot of people behind the counter, but NO one took my order for several minutes. Others were waiting behind me. FINALLY a man took my order, but got it wrong. An extra shot of hazelnut instead of espresso."
Daniel of Loveland, Colorado, found his morning Starbucks experience less than sweet.
"I was handed the drink in a timely fashion and proceeded to the condiment area. I looked, and looked again but could not locate any sugar," he said. Daniel asked the cashier, who delivered the bitter news.
"She replied we do not have any suger at all. I asked why would you sell me a coffee, then tell me you have no sugar? She said if I wouldn't mind waiting for a few minutes she could run to the store and get me some."
Sugar may be in short supply but company execs say the finances are well-nourished. Troy Alstead, executive vice president and CFO described the company's balance sheet as solid and the cash flow as strong. He said the company will take the actions needed to weather the economy.
"We will continue to take the actions necessary to scale our cost structure to meet current business trends while positioning the company to drive margin expansion when the environment improves," he said.
The company says the stores targeted for closing are underperforming. Two thirds of them are located in the U.S.
Starbucks said it has further reduced its fiscal 2009 new company-operated store openings target in the U.S. to 140 new stores from its previous target of 200 new stores. Internationally, the company now plans to open 170 new stores in fiscal 2009, down from the company's previous expectation to open 270 new stores.
