Starbucks announces major reductions in stores and jobs
29 Jan 2009
Starbucks has come a long way since its feverish expansion in the recent past when every day brought news of a new store opening. Yesterday, it said that it would slash 6,700 jobs and close an additional 300 stores, including 200 in the US, as the company continues to struggle during the recession.
About 6,000 of the jobs to be cuts will come from the store closures. Starbucks also announced plans to cut another 700 non-store jobs, including about 350 at its Seattle headquarters.
In a memo to employees Wednesday, Starbucks CEO Howard Schultz said the store positions will be cut over the next eight months. Employees cut will be offered severance packages based on their tenure with the company, Schultz said.
''These decisions have been made to ensure the company is leaner and prepared to endure a worsening economic climate,'' Schultz wrote. In December, he had warned that Starbucks' profit would be less than analysts' estimates at the time as sales in established stores worsened in November. Customers pinched by job losses and falling home prices are cutting back on premium coffee. The firings and closings announced today further accelerate Schultz's plan to trim costs.
The additional measures increase the company's plan to trim costs by $100 million this year, to at least $500 million, Starbucks said. Starbucks may save more next year as the store closings take effect, CFO Troy Alstead said on a conference call.
Schultz also asked the board to cut his annual base pay to less than $10,000, or the minimum required to maintain benefits for him and his family, spokeswoman Deb Trevino said. His base pay was about $1.2 million in 2008. Starbucks is also selling a corporate jet, bringing the fleet to one plane following a similar sale late last year.
The company did not immediately announce what store locations will close. ''The list is not yet finalised,'' said Starbucks, in a statement. ''We do know that the stores are spread across all major US markets and include some of our international markets as well. A list of the closures will be available when it has been finalized, and once impacted partners have been notified.''
In July, Starbucks announced it was closing about 600 stores in the US, mostly new stores that were poorly located and had lead to saturation in some markets. Starbucks also announced it was cutting 1,000 jobs at its headquarters. Starbucks also closed 61 stores in Australia last summer. (See: Starbucks reverses expansion; to close 600 company-operated stores in the US / Starbucks announces major management reshuffle, to cut 1,000 jobs)
For the quarter ended 28 December, Starbucks reported net income of $64.3 million, or 9 cents a share, which included hefty charges to shut down stores and lay off workers. Excluding charges, Starbucks said it made 15 cents, below the average analyst target of 17 cents. A year ago, the coffee-shop chain earned $208.1 million, or 28 cents a share. In the latest quarter, sales at Starbucks fell 6 per cent to $2.6 billion. The company said the number of transactions and average purchase values declined.
