STARBUCKS said on Tuesday it will close 600 company-operated stores in the next year, up dramatically from its previous plan for 100 closures, a sign the coffee shop operator continues to struggle with the faltering US economy and its own rapid expansion.
Seventy percent of the stores slated for closure had opened after the start of 2006, the company said in a statement.
To put it another way, Starbucks is closing 19 percent of all US company-operated stores that opened in the last two years, Chief Financial Officer Pete Bocian said during a conference call.
About 12,000 workers, or 7 percent of Starbucks' global work force, will be affected by the closings, which are expected to take place between late July and the middle of 2009, spokeswoman Valerie O'Neil said.
O'Neil said most employees will be moved to nearby stores, but she did not know exactly how many jobs will be lost. Starbucks estimated US$8 million in severance costs.
In total, the company forecast up to US$348 million in charges related to the closures, US$200 million to be booked in the fiscal third quarter ending on June 30. Starbucks reports third-quarter results at the end of July.
The company had previously planned to shut 100 stores. The 500 more that will be closed had been on an internal watch list for some time. They were not profitable, not expected to be profitable in the foreseeable future, and the "vast majority" had been opened near an existing company-operated Starbucks, Bocian said.
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.
During the call, Bocian said that between 25 percent and 30 percent of a Starbucks shop's revenue is cannibalized when a new store opens nearby and that the closures should help return some of that revenue to the remaining stores.
Bocian said there aren't many stores left on the watch list but that the company will hold remaining stores to the same standards.
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.
"We believe we still have opportunities to open new locations with strong returns on capital," Bocian said.
During the conference call, the CFO echoed concerns about the economy expressed by Chief Executive Howard Schultz in May, when the company attributed a 28-percent drop in profit to less traffic from US consumers who were feeling the pinch of higher food and gas prices.
At the end of March, there were 16,226 Starbucks stores around the world. The company operates 7,257 of those stores in the US.