Starbucks: Real estate savvy gone bad
Posted
Jul 18 2008, 04:15 PM
by
Kim Peterson
Rating:
There are some street corners in America where you can stand and see two, even three, Starbucks stores competing for your business. It was obvious that that kind of saturation wouldn't last. Starbucks has named the 600 stores it plans to close, and some customers are taking the news particularly hard. You can see the full list of closures by clicking here.
Investors seemed indifferent to the news, and Starbucks shares dropped by less than 1% to close at $14.34. (The stock has dropped 45% in the past year.) That's because the specific list of locations isn't that important. Investors are paying more attention to how the closures fit into Starbucks' larger plan to improve its financials and its share price.
The closures are clear evidence that Starbucks made some sloppy real estate decisions. Why would you open one store a mile away from an existing location? Sure, those stores may have been bustling with business at the time, but as soon as the economy wilted people came to their senses about $5 lattes.
Starbucks had talked about opening 1,000 stores in Florida, for example, by the end of the decade, according to the New York Times. On that fast-tracked schedule, the company had to drop some of its selection standards for new sites. The result? Sixty Florida locations are now slated to close.
Even last year, when an economic slowdown was apparent to just about everyone, Starbucks continued its breakneck pace and opened three new stores a day. Next year, it plans just 200 total. I'll bet each of those 200 locations gets thoroughly vetted.
Starbucks made some arrogant real estate decisions that ultimately left it overextended as gas prices rose, as mortgages flopped and as bare necessities became harder to afford. Closing stores is an important step in turning the company around, but it's just one step in a broad transformation.
The bigger challenge? Figuring out how to sell drinks that cost as much as a gallon of gas.
Related reading:
Dark days for Starbucks: job cuts and store closures
A plan to rescue Starbucks
Why Wall Street hates Starbucks
Something stinks at Starbucks
Free Wi-Fi at Starbucks starts today
