Starbucks reverses expansion; to close 600 company-operated stores in the US

02 July 2008

In a marked reversal from its aggressive marketing thrust of opening a new store almost every other day, Seattle-based beverage giant Starbucks announced yesterday the closure of 600 of its well-recognised stores in the US even as it struggles to come to terms with a slowing American economy and the fallout of rapid expansion.

Although the company didn't specify the stores affected other than to say they are spread throughout the country, it did mention that 70 per cent of those had been opened in the last two years.

Another way of looking at it, as CFO Pete Bocian said, is that Starbucks is closing 19 per cent of all US company-operated stores that opened in the last two years – quite a bad reflection on its aggressive expansion strategy.

Some analysts had wondered whether Starbucks' explosive growth in the US would come back to haunt it as the market became saturated. But before Tuesday, the company avoided acknowledging that saturation was an issue and pinned weak financial results and adjustments to new store openings on the economy.

However, Starbucks-addicts can take some solace from the fact that the "vast majority" of the stores to be closed down had been opened near an existing company-operated Starbucks. This, Bocian said, cannibalised between 25 and 30 per cent of existing stores' revenue, and he expects the closures to positively affect the ones remaining.

Starbucks still plans to open new stores in fiscal 2009, but on Tuesday it cut that number in half to fewer than 200. The company did not adjust its plan to open fewer than 400 stores in 2010 and 2011.