Starbucks Closings..... Huh? What Happened?

The Chicago Tribune reported on July 14th of 2008;

"Starbucks said July 1 it intended to close 600 company-operated stores in the U.S. to help deal with a slowing economy. The stores make up 8 percent of the company's 7,250 it operates. The shutdowns will run through March 2009 and reduce the company's global workforce by as many as 12,000 jobs.

Before listing the stores it plans to close on its Web site, Starbucks is giving its employees a 30-day warning notice. The company wants to relocate some of workers to other stores, if one is nearby. The stores, opened from 2006 through 2008, were located close to other Starbucks outlets. As a group, the sites weren't profitable.

Starbucks Chief Executive Howard Schultz, who returned to the post in January to spearhead a broad turnaround plan, has admitted the coffee-shop chain made "poor real estate decisions." He said closing the 600 stores was the "most angst-ridden decision" Starbucks has made in his 25 years at the company.

The company also was hurt by the subprime-mortgage crisis, especially in California and Florida. The states account for one-third of the company's U.S. retail revenue. The faltering economy has triggered weaker profits and less traffic at its locations.Separately, Starbucks this week is unveiling a new line of protein smoothies and a sweet cold beverage with Italian roots. The drinks will make a debut in some markets as early as next week."

I think we all would call this oversaturation of their markets. Who was asleep at the wheel here, was it the HR professionals? the marketing professionals? the operations folks?

How about the whole crew at Starbucks Central?

Although it is very easy for someone like me (on the outside) to criticize what I see as poor decision-making after-the-fact.

This problem would seem to be basic management theory. So, let's analyze this at a very high level........

• Coffee is a commodity, easy to obtain and roast.
• Entry into the coffee-selling market is realtively easy.
• Product differentiation has continued to decline
• Starbucks has placed a store on every corner of every major metropolitan city.

For the past five to seven years, we have seen Starbucks grow and their competition grow. In this timeframe McDonald's has entered the "premium" coffee market at lower prices than your basic coffee at Starbucks. Small town coffee shops are roasting their own coffee beans and selling their coffee products at prices equal to or less than that at your local Starbucks. Starbucks own model created cannibilization of their markets where one store might be taking customers and profits from another.

Furthermore, haven't you seen Starbucks coffees at your regional grocer? at your local Wal-Mart? at your Staples or Office Depot??

It would seem to me that Starbucks management began to believe that their products were invinceable. Well, as we all find out sooner or later, no matter who we are, we are not invinceable. The unfortunate part of this whole ordeal, is that employees, as well as customers, are being impacted.

These types of decisions are not easy to come to and I am sure that Mr. Schultz is struggling however, he and the management team at Starbucks central are the same people who made the decisions to add these stores in the first place, have they been impacted financially by this??? have they seen their salaries reduced or lost entirely? I doubt it. They must not have done their homework or looked at the global marketplace before making the decision to add these stores that are now being closed.

If you have read anything in the main stream media about Starbucks, the writers discuss the "Starbucks Experience." If Starbucks wants to continue to grow and enlarge their market share, it is my personal belief they need to focus on that "experience" whatever they believe that it is.

For what it is worth...... Polictially Incorrect HR