Starbucks to shut stores, cut jobs as part of a $1-billion restructuring plan
Starbucks' restructuring effort is part of a turnaround plan under CEO Brian Niccol, which still has “a long way to go”.
Starbucks Corp. plans to close stores and eliminate 900 jobs in a $1-billion restructuring effort as the company amps up a turnaround plan under Chief Executive Officer Brian Niccol.
The coffee chain, which had about 360,000 global employees last year, said its overall store count in the US and Canada will drop by 1% to 18,300. After that, it plans to grow the number of stores it operates and refurbish another 1,000 restaurants.
Following a review of its coffee houses, the company identified a number of stores where it couldn’t see a path toward profitability and decided to close them. It plans to focus on stores that align with Niccol’s plan to make its restaurants a more inviting place to visit.
“Early results from coffee house uplifts show customers visiting more often, staying longer and sharing positive feedback,” Niccol said in a letter to employees on Thursday.
The company’s shares were little changed in pre-market trading. The stock was down 8% as of Wednesday’s close, compared with a 13% increase in the S&P 500 Index.
The changes being made still don’t “address that their prices have just gotten way too high” for the current competitive and economic environment, Melius Research analyst Jacob Aiken-Phillips said. The turnaround “still a long way to go”.
Niccol, who took the helm a year ago, is attempting to lead a turnaround at the coffee chain after six straight quarters of same-store sales contractions. The plan centres on reviving locations by adding seating and electrical outlets to encourage more visits for longer durations.
Those changes have yet to make a meaningful dent in the Seattle company’s financial performance and this marks the second round of job cuts under Niccol.
A portion of the closures may affect some of the small pickup stores that only took mobile orders, the company confirmed to Bloomberg News. Other stores in that format will be converted to full-service cafes. These locations were part of previous management’s growth strategy.
“That format is done,” Aiken-Phillips said of the mobile pickup-only stores. “They’re trying to build that whole third place where you can go sit down in the coffee shop.”
Most recently, Starbucks reported sales and profit that missed expectations for the fiscal third quarter. The company is also facing increased competition from smaller chains in the US and China, its two largest markets, that are cranking out cheaper beverages to customers at a faster rate.
Starbucks is paring down its menu to reduce drink complexity—a bid to lessen wait times—and to make room for new items that better match changing consumer tastes. The cafe operator has increased its sugar-free options and introduced protein-infused beverages as customers seek healthier options.
Analysts and investors, while generally in favour of the changes, have grown wary of the cost and timeline of Niccol’s plan. Profitability worsened last quarter due to the investments aimed at revitalising the brand.
