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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Comments:
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..
@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.
You see? You mess with the time-honored logo and this is what you get: you go start going tits up.
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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.
NetJets.com just got another customer!
@ALaterDayTD:
You know you say that, but where the stores are that close its for a reason. The reason being THEY MAKE MONEY! Most of the stores that were closed were not in major metropolitan areas.
@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.
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 .
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.
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.
@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).
Does this mean that Starbucks won't be opening any more locations directly across the street from each other? I hate crossing streets.
@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.
@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.
@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.
@mariospants: I'm fairly sure I've seen disemboweling since Consumer Reports bought out Consumerist.
@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.
@downwithmonstercable: You could drive your used Hummer to catch a flight on your used private jet! :P
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 .
Maybe now Dire Straits will be able to afford their own jet airplane.
@Ash78: They should try leasing the jet- no reason to have it just sit if they can at least get some revenue from it
I'm glad they aren't willing to destroy their core values like gutting health-care and stock options.
@lockdog: Actually it's about a 99 percent paycut if his salary was 1.2 million. 1 percent of that is about 12 grand.
Sadly, that IS their original logo. They're becoming what they were when they last used it: a tiny Seattle-based coffee chain.
@nullrout: Indeed. You can be someplace like Union Square, in Manhattan, with 8 or 9 Starbucks within a 2 block radius, and still the line will be 5-15 people deep at the counter of each and every one.
Oh, the poor dears! Having to give up their private jet! What a tragedy!!
Good on him, taking a 99.1 percent paycut.
Easy solution -- don't charge so freaking much for coffee.
Hard part about easy solution -- maintaining quality.
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
@Pink Puppet: I think so as well. As far as I know this commenting system is still tied into gawkers commenting system. I say this because when you look at a person's profile it still shows comments made on other gawker sites.
"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.
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.
@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.
@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?
@lockdog: Also, I can't type. Make that, "And now we know..." I think I'll go hang my head in shame somewhere now.
I bet the jet tastes burnt.
Partnering is such sweet sorrow...
@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.
@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 .
They really ought to try selling good-tasting coffee at a reasonable price. The stuff they sell is absolutely foul.
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.
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.
@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.
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!