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TOO CLOSE FOR COMFORT: Starbucks is closing stores that are too close to another store, validating some critics who say the company may have overbuilt in the United States. -- PHOTO: REUTERS
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LOS ANGELES - STARBUCKS, the world's largest coffee chain, will close 600 stores in the United States and cut up to 12,000 full- and part-time positions, as it copes with an economic downturn and increasing competition.
'We believe absolutely we're seeing a major impact from the economy,' Starbucks chief financial officer Pete Bocian said in a conference call on Tuesday.
He added that Starbucks' aggressive growth strategy of recent years created problems due to cannibalised sales and market saturation, the Chicago Tribune reported.
Starbucks, the Seattle-based company that turned the idea of a coffee shop into a way of life in the US, hit a big roadblock at the end of last year. Customer traffic dropped for the first time, raising questions about whether the company had been expanding too aggressively.
The coffee seller, bracing itself for its first full-year profit decline since 2000, has also been grappling with the slowing US economy and consumer spending at the same time that major competitors like McDonald's and 7-Eleven have begun attacking its core business.
In response, the company announced on Jan 30 that it would be shutting down 100 stores nationwide. This has been jacked up to 600, representing 8 per cent of its company-operated stores in the US. As at the end of March, there were 16,226 Starbucks stores around the world, including 7,257 company-operated stores in the US
All of the targeted units are close to another store - validating some critics who said Starbucks was opening stores too close to one another. Those critics complained that the company had overbuilt in the US - particularly in major urban areas like Manhattan, where it is not unusual to see several Starbucks in a single city block.
It was also an aggressive builder in California and Florida, states that enjoyed red-hot growth during the US housing boom and have been hardest hit by its collapse.
While investors cheered the announcement, analysts were quick to point out that a further worsening of the US economy or steep increases in petrol and food prices would put additional pressure on the company known for its gourmet-priced coffee drinks, such as US$3 to US$4 (S$4.09 to S$5.45) lattes and US$5 frappuccinos.
A cavalcade of economic troubles, from imploding housing markets to rising petrol prices, has pinched US consumers, who are pulling back on the little luxuries, hurting not just Starbucks but nearly all retailers.
NEW YORK TIMES, REUTERS
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