300 Starbucks Will Close, Brand New Fancy Jet Will Be Sold

Starbucks is closing an additional 300 stores, says the Seattle Times, and will eliminate 700 non-store and 6,000 store jobs. The store closings will save the company $500 million per year. Meanwhile, the company is trying to sell a fancy corporate jet it bought last month for $45 million. Read CEO Howard Schultz’s memo to employees inside.

Dear Partners,

As you well know, these are very challenging times for everyone at Starbucks. We are working hard to navigate both a deteriorating global economy and the restructuring of our business. And we do so with the ever-present priority to preserve the culture and guiding principles of our company.

Today we announced first-quarter results. Our revenues were down 6% from a year ago, driven primarily by a 9% decline in same-store sales. Retailers across the country have reported negative comparable store sales as high as 30%, in the midst of declining consumer confidence to levels not seen in 40 years. The forecast by experts suggests the economic situation will get worse before it gets better.

All of this has required us to aggressively re-architect our cost structure. Over the past few months, we have made some progress in containing costs and improving operations in our existing stores. For this I thank all of you for the sacrifices, discipline and effort you are making each and every day.

But we have more to do, and we must act with decisiveness in order to make Starbucks even more relevant in an increasingly worsening business environment.

The leadership team and I have gone line-by-line to reduce costs while considering every decision through the prism of our values and culture. Offering comprehensive benefits — including health care and equity in the form of stock options — are at the core of our company and have taken priority over certain other benefits. We will continue to offer health care coverage and Bean Stock to partners, and we are seeking shareholder approval to amend our equity incentive plans to allow eligible partners a one-time opportunity to exchange certain outstanding underwater stock options for a lesser amount of new options with lower exercise prices.

All told, we plan to invest more than $500 million in total partner benefits and stock compensation this year. While we fulfilled a $15 million company match to our U.S. 401(k) savings plan for 2008, we have determined it should be discretionary in 2009. And, in order to focus on the benefits that provide the most value to the greatest number of partners, we are revising our paid time-off policy for U.S. retail hourly partners, revising our Stock Investment Plan (S.I.P.) and expanding our U.S. commuter benefits program. Details can be found in the attached Q&A document.

We are also making difficult decisions that will impact some of our partners’ lives. Moving forward we will be unable to maintain our workforce as it is currently organized. As part of today’s announcement we indicated that there will be layoffs. Approximately 700 non-store partners will be separated from the company in the U.S. and internationally, with about half at the Starbucks Support Center in Seattle by mid-February.

We must also close approximately 300 additional underperforming stores in FY09, about 200 in the U.S. and the remainder in international markets. Of our 167,000 retail partner workforce, we estimate we will reduce approximately 6,000 store positions over the course of the next eight months. As before, we hope to be able to place affected store partners elsewhere in the store organization.

Partners who are displaced will be offered severance packages based on job level and/or years of service.

These decisions have been made to ensure the company is leaner and prepared to endure a worsening economic climate. I can assure you the management team is aware of the impact of these steps on the organization — both those who will depart and those who stay. For those of you who will be departing the organization, I thank you for your contributions to Starbucks and wish you and your families the best during this difficult time.

In the last few weeks we have seen countless companies announce layoffs and some bankruptcies. I point this out to try and put in context that the financial crisis is affecting almost every company around the world. The decisions we make are about preserving the future of Starbucks. And I can promise you that I and the leadership team will do all that we can to put us in a position to emerge strong on the other side of this crisis, and stay true to our values and culture.

Respectfully,

Howard

Schultz asked that his own salary be lowered to around $10,000, the minimum at which he would still qualify for health care and other benefits, says the Seattle Times. Schultz received a salary of $1.2 million last year and his total compensation was valued at $9.7 million.

The company is also trying to unload a $45 million corporate jet it purchased last month — which has only made 15 flights.

The new jet has made only 15 flights, according to the sales documents. Several of those landings were in Honolulu and Kona, Hawaii, during a two-week trip apparently taken by CEO Howard Schultz just after Starbucks took delivery of the airplane.

A Starbucks spokeswoman said the company ordered the jet three years ago and determined that canceling delivery would be too expensive.

Starbucks is also trying to sell its old jet, and has so far been unsuccessful.

Starbucks did not release a list of closing stores, but did say that 200 were in the US.

Starbucks will cut 6,700 jobs, close 300 more stores [Seattle Times]
Starbucks trying to sell its new jet [Seattle Times via Starbucks Gossip]
(Photo:Panzoz’d)

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  1. Ash78 ain't got time to bleed says:

    The used market for business jets has dried up. They’re going to lose their asses, but at least it’ll help keep their image intact!

    It used to be that you could order a jet, sit on the contract, then sell the contract to someone else for an extra $5-$10 million (“impatience premium”). These jet speculators have been squeezed out, for the most part. In theory, Starbucks could sit on the jet, wait for the market to recover, and get all their money out of it. But JETS ARE EVIL!

    • downwithmonstercable says:

      @Ash78: On the other hand, if you want a used jet, you have a huge surplus to choose from now that jets are suddenly unfashionable.

    • Jakuub says:

      @Ash78: At the same time, at least they’re trying to maintain their image, instead of ditching jets/Massive CEO salary after the public outrage. I’m guessing they decided that the $5-10 they could make on the jet will be offset by the free publicity they get out of this (or at least that’s how they came to the decision to do this).

      • Ash78 ain't got time to bleed says:

        @Jakuub: Right. Nobody should fail to realize it’s a business decision, whether it really makes sense or not (chances are they’ll still use a fractional ownership plan — aka “jet timeshare” — which often costs more money, but is off the balance sheet).

        I once worked on an acquisition of a bank who had a Hummer H2 with their name screenprinted all over it. They parked it at local events for publicity. Until one day, the media decided that Hummers were evil and the bank (wisely) sold it at a pretty hefty loss and spent more money on another vehicle.

      • alexcassidy says:

        @Jakuub: Actually, that’s exactly what they did. News about the jet broke in the Starbucks employee community and they went absolutely APESHIT.

        There have been the well-publicised store closures and layoffs, and they recently suspended 401k matching as well as reducing the discount in their employee stock purchase plan. Also, they are requiring all stores to run 3% below on their labor hours. (Keep in mind the company is still profitable, just not as much as they’d like to be)

        They did all this, and THEN they took delivery of the jet. So it was definitely in response to public outrage, it just wasn’t the general public.

        [starbucksgossip.typepad.com]
        If you’ve got the time, this should give you a taste of how people reacted

    • Brandon Zeman says:

      @Ash78: They should try leasing the jet- no reason to have it just sit if they can at least get some revenue from it

    • APFPilot says:

      @Ash78: I’ve still been able to get a premium on some airplanes but it isn’t what it used to be

    • quail says:

      @Ash78: If selling it creates a loss and charter businesses are down, then why not figure out a tax write off for flying sick kids around with it? Some company in the 90’s bragged about their unused space on corporate jets being given over to sick kids and their families. They ran ads ad naseum for awhile, but I can’t remember their name. It had to be a tax write off with a little good will marketing thrown in to boot.

      • deadspork says:

        @quail: Liability, maybe? What happens if someone gets hurt or the plane crashes?

        It’s just a guess, but it seems to be a reason companies don’t do a lot of very easy, charitable things anymore (like bakeries giving the unsold items to the homeless, etc).

  2. ALaterDayTD says:

    Thats too bad… Some people won’t be able to walk out of a starbucks, forget they just went, and walk into the one right across the street anymore..

  3. mariospants says:

    You see? You mess with the time-honored logo and this is what you get: you go start going tits up.

    ——

    on a serious note (does Consumerist disemvowel or is that only Gawker sites?) when I talk to Starbucks baristas here in Ottawa business seems to be fine.

    • mariospants says:

      @mariospants: And by “talk to Starbucks baristas” I mean “chat up the pretty ones”.

      • downwithmonstercable says:

        @mariospants: LOL.

        All the baristas/baristos (?) I talk to say business hasn’t slowed. But I live in a suburban/urban area with considerable soccer mom populations. I’m guessing there are underperforming stores here and there that aren’t making the cut or aren’t making enough profit for them to weather a downturn.

        • Brie says:

          @downwithmonstercable: I’m a loner mom in soccer mom country and I patronize Starbucks maybe twice a month. Always prefer the quieter Starbucks that don’t have lines fifteen deep AND crowds in the wait-for-your-drink area. The non-drive-thru Starbucks always seem calmer, too. But too bad for me because oases of quiet don’t bring in revenue like caffeine-milk-and-sugar-starved throngs. Does Starbucks have a name for people who come in two or three times a day?

          • Oranges w/ Cheese says:

            @MissedTheExit: Addicts?

          • downwithmonstercable says:

            @MissedTheExit: I hear you. I’m the stop in once in a while type of guy and I prefer the sligthly further out stores. Unfortunately being in the area I’m in, that could mean a 20-30 minute drive.

            All things considered, I can’t complain though. I hope things turn around for Starbucks. I’m not a coffee snob, I think their coffee tastes fine, and they provide a nice atmosphere as long as there aren’t like five thousands other people in there.

    • Pink Puppet says:

      @mariospants: I’m fairly sure I’ve seen disemboweling since Consumer Reports bought out Consumerist.

    • ADismalScience says:

      @mariospants:

      Sadly, that IS their original logo. They’re becoming what they were when they last used it: a tiny Seattle-based coffee chain.

      • quail says:

        @ADismalScience: Didn’t the original logo have full boobage showing? Seem to remember that from the first time I took a sip in my southern town and went WTF? I could care less but I knew the Baptists in town would take it as a sign of the anti-christ.

        • dragonfire81 says:

          @quail: Hello to a fellow Ottawan! Although I don’t live there anymore, I was born there and I have spent a lot of years there. I went to a Starbucks from time to time but usually couldn’t afford it. I was more likely to be found in a Bridgehead coffee shop.

    • TheGuinnessTooth says:

      @mariospants: You live in Ottawa and go to Starbucks instead of Bridgehead? What a wasted oppurtunity. Everytime I go to Ottawa I make sure to bring back a pound or two of their ground espresso. I wish they’d open a shop or two in southern New England, ideally New Haven.

  4. PunchesSmallAnimals_GitEmSteveDave says:

    NetJets.com just got another customer!

  5. u1itn0w2day says:

    I’m not surprised nor should guys like Schultz really be .At least he’s willing to take a pay cut and set an example .

    Starbucks grew too fast and charged too much to sustain their business on the scale which they are doing now .If another close by Starbucks isn’t taking your sale the cheaper McDonalds down the street is .

    But with all these businesses,I don’t see how prices got as high as they did .What was it-the I phone had to be cut in half .When the tech heads aren’t buying high priced gadgets you know the party’s over .

    I guess those same tech heads aren’t buying internet time at Starbucks either .

    • downwithmonstercable says:

      @u1itn0w2day: I remember reading a few years back that starbucks still wasn’t happy with the number of stores they had. I don’t remember the exact number they had at that time, I think it was something like 8,000 stores in the US. They wanted to have 30,000 total in the next ten years. I thought that seemed a bit outrageous. Turns out it was unfortunately.

    • floraposte says:

      @u1itn0w2day: I’m not sure that the inability to sustain a business at boom levels during a recession is really proof that they grew “too fast,” though. I’m not convinced that the ideal business model is one that stays the same size regardless of the market. After all, if they made more money from recent expansions than they lost when sales began to decline and when they unload the assets, it was still worth the expansion.

      • u1itn0w2day says:

        @floraposte: I’m not saying stay the same size but when you have to close almost a thousand stores in less than a year I think there was some over building there .

        On one hand it helped them capitalize on a fad or trend but fads and trends only last so long .I guess the question is will the shrinkage be faster or more than the expansion .Hopefully the closing stores at least payed for themselves .

        But to me it still comes down to price ,especially for really regular customers .The cost has to catch up to them over time .

        • downwithmonstercable says:

          @u1itn0w2day: I’ve been hearing McDonald’s is having a big impact as people try to cut costs but don’t want to cut their morning coffee. Starbucks had the benefit of a boom economy when expanding, and now that proverbial poop has hit the fan, they’re losing the legs they’re standing on.

  6. lockdog says:

    Got to hand it to the guy for taking 80%ish pay cut. I’d like to see every bank, financial firm or automaker taking bailout money to do the same with all of their top executives.

    • thezone says:

      @lockdog: I also have to give Schultz a big thumbs up by cutting his salary to 10k. How many CEOs would be willing to do that? I wish more CEOs would lower their salary and get rid of executive bonuses before laying off employees.

      • Collie says:

        @thezone: Just remember the salary of CEO’s is a minor part of their compensation, it did not say he was giving up his stock options, and other compensations.

        I think it is a good PR move especially to the 6000 poor schleps who just got the axe to their noggins.

        Not to mention their are going to be a lot of empty coffee shops across the fruited plain now. What do you do with all the empty retail buildings in the meantime? Can you convert them to housing for the soon to be foreclosed.

    • your new nemesis says:

      @lockdog: Seems like the honorable thing to do, if your corporation is tanking, you shouldn’t be expecting to make as much. I am also impressed with the effort to not leave the employees high and dry by offering severence and placement in other stores. Definitely more ethical than other business’ you hear about on this site. I think I may go get a cappucino later.

    • coren says:

      @lockdog: Actually it’s about a 99 percent paycut if his salary was 1.2 million. 1 percent of that is about 12 grand.

      • lockdog says:

        @coren: Yep…I knew that seemed too low, I should have double checked it. And know we know why I am (at heart) a carpenter. I can rock the fractional math, but decimals and percentages really screw with me.

    • Blueskylaw says:

      @skizsrodt:

      Don’t forget the henhouse,

    • sarahq says:

      @lockdog: I thought that decent of him as well. Might not have any significant effect on their books, but it’s certainly the respectable thing to do in terms of morale.

    • katieoh says:

      @lockdog: given, with perks and stuff, the article said it was something like 9mil a year, but the actual pay cut was a really, really nice move. it makes me want to go to starbucks to support a company that is apparently taking logical steps to remain afloat… no “Starbucks Field” or any other such bull.

    • edosan says:

      @lockdog: I know it’s a largely symbolic gesture, but I wish more CEOs would be willing to cut their own salary before they kick people out on the street.

  7. your new nemesis says:

    So, I won’t have a starbucks in every mall/department store/bookstore/lumberyard/junkyard/bathroom/furniture store to choose from? I guess this means I won’t have to worry a out my car being towed away.

  8. Anonymous says:

    Does this mean that Starbucks won’t be opening any more locations directly across the street from each other? I hate crossing streets.

  9. u1itn0w2day says:

    Are Starbucks problems as much about a fad or trend running it’s course along with price ?

    I think a saw a number of about 16,000 stores .Even if they’re only 10,000 in the US that’s about 200 per Starbucks per state .But how many major metropolitan areas in a state can support a Starbucks at their prices .

    • Colage says:

      @u1itn0w2day: No. I think that Starbucks has been ubiquitous for long enough that it can’t really rightly be called a fad or a trend anymore. Nor is their pricing scheme uncommon; a 20 oz. coffee in my immediate area is $1.90 from Starbucks, $2.05 from McDonald’s, and $1.75 from 7-Eleven. Espresso drinks are obviously more expensive, but not out of line with what you would get at another chain store or independent coffee shop.

      What’s happening is more likely a function of discretionary spending being reined in by people because, or for fear of, job loss. When things are going well you can buy luxury items like espresso drinks and pastries, but once the squeeze gets put on, it’s back to oatmeal and drip coffee from the house.

      The short answer is that Starbucks isn’t experiencing anything different than any other company is now. People are spending less, which means that it needs to tighten its own belt. Starbucks just needs to tighten a little extra since the nature of its product makes it more vulnerable to a bad economy.

      • u1itn0w2day says:

        @Colage: I agree to a point .But Starbucks I think had announced 600 closings last summer before the Wall Street meltdown .

        And even though I don’t fully agree with the process Starbucks was on the list of AMEX’s danger store credit card blacklist .Point being if the credit card companies are seeing a pattern of pay problems with people who spend at Starbucks with credit cards that tells me Starbucks has been overpriced .

        The overall economy is a big problem but Starbucks’s problems started before the current economy .

        • Colage says:

          @u1itn0w2day: The recession started in December of 2007, which would put store closings in Summer 2008 to be pretty reasonable. The fact that they closed stores before Lehman Brothers went down isn’t really significant unless you’re drawing a timeline.

          Further, I don’t see how AMEX’s blacklist figures into any of this; I think you’re taking data that says that people who use their AMEX there are disproportionately likely to miss a payment and assuming that data is saying something about the company and not the consumer.

  10. ceilingFANBOY says:

    Maybe now Dire Straits will be able to afford their own jet airplane.

  11. goodcow says:

    I’m glad they aren’t willing to destroy their core values like gutting health-care and stock options.

    • alexcassidy says:

      @goodcow: Yes, I give them props for that as well. As long as you overlook the fact that their stock might as well be toilet paper and they’ve cut health care by making it so almost nobody gets enough hours for it.

  12. savdavid says:

    Oh, the poor dears! Having to give up their private jet! What a tragedy!!

  13. coren says:

    Good on him, taking a 99.1 percent paycut.

  14. RazFandango says:

    Easy solution — don’t charge so freaking much for coffee.

    Hard part about easy solution — maintaining quality.

  15. Blueskylaw says:

    Dear Partners,

    When profits are up you don’t get to share in it and I buy a jet for myself, when profits are down you get laid off.

    Sincerely,

    Your Boss, HS

  16. Corporate_guy says:

    “reported negative comparable store sales as high as 30%”
    Does that mean the stores lost money? Or just aren’t making enough profit? It would be messed up to close all those stores just because the profits they make aren’t enough. Profit is profit.

    • Oranges w/ Cheese says:

      @Corporate_guy: He said their stores saw an average 9% decline, while other retailers have seen as much as a 30% decline.
      He means they aren’t doing as horribly as other stores.

  17. Christopher Carey says:

    Its only a matter of time before they are asking for TARP funds.

    I can see the argument now. Give us the money or we spike your Latte.

    Seriously if only 100 people go to each store, thats like 30000 less super hyper caffeine addicts roaming the streets looking for their fix. Maybe those soccer moms can save some fuel stay home and speed complain at home now.

  18. Pop Socket says:

    I bet the jet tastes burnt.

  19. jpdanzig says:

    Partnering is such sweet sorrow…

  20. wee0x1B says:

    They really ought to try selling good-tasting coffee at a reasonable price. The stuff they sell is absolutely foul.

  21. Kishi says:

    Well, since there are four Starbucks within one mile of each other by where my wife works- one in a mall, one in a Barnes and Noble, and two free-standing- I can’t help but think they’ve over-saturated the market a bit.

    • Whyspir says:

      @Kishi:

      Friend of mine down in Washington saw four coffee shops all across the street from each other in an intersection…

      3 were Starbucks.

      • Colage says:

        @Whyspir: Geographic proximity doesn’t always mean over-saturation. I’m not sure which Washington you’re referring to, but Starbucks can (and does) have busy shops across from each other at DC Metro exits. And if there’s a 4th coffee shop on the corner, then it’s probably not Starbucks being exuberant.

  22. Oranges w/ Cheese says:

    Our revenues were down 6% from a year ago, driven primarily by a 9% decline in same-store sales. Retailers across the country have reported negative comparable store sales as high as 30%, in the midst of declining consumer confidence to levels not seen in 40 years

    No.. I think its more people wising up to the fact that a $4 cup of burnt coffee isn’t any better than the $.50 burnt coffee they can make themselves.

    • Etoiles says:

      @Oranges w/ Cheese: I hate to be Ms. Starbucks Apologist here, because frankly Dunkin’s is my favorite coffee and has been since I was 17 (I grew up in Massachusetts, they’re like three to a block up there in the home turf), but at Starbucks their actual cups of coffee — just coffee — are in the same $1.50 – $2.50 range that most places sell coffee for. It’s the lattes and blended drinks and such that are $4 – $6, and those are made with espresso anyway.

      Just tired of the same wrong argument.

      • Jim Topoleski says:

        @Etoiles: maybe by you its the same, here in the Tri State (NYNJCT) area, a X large Dunkin Donuts is 2.15-2.25 depending on area. A Venti Coffee (which is smaller than a xlarge) is just shy of 3 dollars.

        Even Dunkin Donuts lattes are cheaper, and they actually taste decent as opposed to Starbucks whos espresso is almost as over-roasted as their coffee.

        And they both use automated machines so its not like your paying for the experience of the barista… many wouldnt know what a real expresso machine LOOKS like if you showed them one.

    • jusooho says:

      @Oranges w/ Cheese: I occasionally meet clients at a local starbucks and never saw a 4 dollar burnt coffee. To get that price you must get one of those obscene ice-cream-whipped-cream monster drinks, which look foul anyway.

      A large coffee is $2.15 at my starbucks. Very cheap when you consider the cost of renting meeting space at the local La Quinta or other alternatives.

  23. snowburnt says:

    Maybe they can sell their jet to Citi…

  24. Plates says:

    What do you do when the Starbucks down the street closes?
    Go to the one across the street.

  25. Quake 'n' Shake says:

    I rarely hit the Starbucks near my home anymore. The past few months, it’s seems to always have a long line, and then when I get to the counter, they don’t have any bold roast coffee made. I dislike the Pike’s Place roast. With 2 independant coffee shops a literal stone’s throw away from the nearest Starbucks to me, why bother anymore?
    Oh, and there’s 1 other independant coffee shop even closer to my house, that’s in the opposite direction of Starbucks. Frankly, Starbucks is now my 5th choice.

    • Anonymous says:

      @Quake ‘n’ Shake: That is almost science fictional that you have 5 chioces before a s%#@&*%ks.If i could find a nice mom & pop coffee shop i would be there for a shot.
      i just go for the free newspaper and the 53CENT refills.ah yes the magical 53 cents refill.

  26. vastrightwing says:

    and what about Juan Valdez? What’s going to happen to him now?

  27. RazFandango says:

    The easiest way they could recover is if they’d stop charging $3.50+ for their coffee.

  28. geoffhazel says:

    This seems like a bad time to be in business aircraft sales. Everyone is getting dumped on for owning or using a corporate jet.

  29. Brazell says:

    Well, I love my local Starbucks, so hopefully it doesn’t close.

  30. springboks says:

    Are 300 Walgreens going to open instead? In this economy who needs coffee. Gimmie Vicodin!

  31. P_Smith says:

    Does this mean they are also going to sell those new coffee making machines that were supposed to save time?

  32. darkryd says:

    I respect the fact that the guy is taking a massive pay cut, however its a little shady that he took a trip to Hawaii on the jet right after it was bought.

    I doubt it was just a “business” trip that happened to fall right after the jet was purchased.

  33. baristabrawl says:

    Honestly, it has nothing to do with business. They closed the store I worked at in Indianapolis and it’s on a major thoroughfare on the way into downtown. It almost seems like class warfare, because the majority of the stores here are in “not so good” parts of town. Sad.

    Now, I went out and found a job making twice as much as I was at Starbucks, but I did like the job. It’s sad, I’m glad I work in Healthcare and that is what my degree is for. Hopefully it won’t go belly-up, too. :-(

  34. Jennifer Barajas says:

    It’s terrible that Howard has to cut not only hundreds of jobs, but also about 90% of his income. I know he’s worked hard to help build such a great company thats gone global. It’s a huge sacrifice and I hope it all gets better.
    I work for the Starbucks in my neighborhood and I can definitely say that it is the best job ever. I was devistated when they told me we had to cut hours and layoff a few more people because we have such a great crew. For all the partners out there, please make sure that you are on top of your game at work. Performance is everything. We need to do something to help. Good luck and God bless.