Starbucks triples store closures in the U.S.

AUTHOR

Daphne Howland@daphnehowland

PUBLISHED

June 21, 2018

Dive Brief:

• Starbucks will shutter about 150 U.S. company-operated stores, triple its historical average of 50 closures a year, which the company on Tuesday warned will result in a slightly lower growth rate in net new company-operated stores.
• The move is part of a growth strategy the company unveiled this week, which also entails shifting more new company store openings to under-penetrated markets, slowing licensed store growth, and “expanding the breadth and depth of digital relationships” with current and new customers.
• The initiatives reflect a new growth strategy, focused mostly on the U.S. and China markets, to address an anticipated 1% growth in Q3 FY18 global comparable store sales, according to the company’s announcement.

Dive Insight:

Starbucks shares slid on Wednesday after its new strategy was announced, and CEO Kevin Johnson sought to calm nerves in an interview with CNBCafter the company unveiled its plans.

While the coffee giant is right-sizing its U.S. store fleet, that includes not just closures but also 400 new store openings nationwide, he said. And China, the other pillar of growth called out in the document, is “in a build stage,” he also said.

Growth in the U.S. has slowed, though that’s something to be expected considering that Starbucks has been operating for nearly half a century, he noted. “Over the last 47 years, you know, we have built an iconic global brand — 77 countries, 28,000 stores around the world serving nearly 100 million customers a week,” he told CNBC. “So now, at our scale, I think we’ve got to be much more disciplined in setting our priorities, we’ve got to be more data-driven in terms of how were allocating resources and tuning the model, we have to be much more agile as innovators.”

Moody’s Investors Service and Fitch both took account of such strengths in notes emailed to Retail Dive on Wednesday, but each also downgraded Starbucks in light of new debt and slowing same-store sales.

“The material increase in Starbuck’s fixed shareholder return target will result in significantly higher debt levels and weaker credit metrics at a time of operating challenges,” Moody’s Senior Credit Officer Bill Fahy said.