It’s been a tough year for America’s most ubiquitous latte provider, and Chief Executive Officer Kevin Johnson’s latest news to investors has just added to the overall sense of “disappointment” in the company. Amid continued backlash from the racial bias accusations and more progressive cities raising the minimum wage, Starbucks’ earnings have fallen below expectation. In response, Johnson has decided to shut down some 150 company-operated stores.
On Tuesday, Johnson said in a statement that due to the company’s recent “not acceptable” performance, Starbucks will further “streamline” to improve its “innovation agility” and “re-accelerate growth.”
“While certain demand headwinds are transitory, and some of our cost increases are appropriate investments for the future, our recent performance does not reflect the potential of our exceptional brand and is not acceptable,” said Johnson in a statement Tuesday. “We must move faster to address the more rapidly changing preferences and needs of our customers. Over the past year we have taken several actions to streamline the company, positioning us to increase our innovation agility as an organization and enhance focus on our core value drivers which serve as the foundation to re-accelerate growth and create long-term shareholder value.”
That unacceptable performance, the company revealed, was a disappointing 1% sales increase globally in the current quarter, about a third of the expected 2.9% growth projected by analysts.
As Bloomberg explains, some of the “streamlining” Johnson referenced will come in the form of shutting down “about 150 company-operated stores in densely penetrated U.S. markets next fiscal year, three times the number it historically shuts down annually.”
While Starbucks’ growth abroad has been quite strong, it’s struggling in the States amid racially-charged controversy and the continued push by many big cities to raise the minimum wage and impose more strenuous regulations, prompting the company to shift its focus to more rural areas. Bloomberg reports:
With about 14,000 stores domestically, Starbucks is now pumping the brakes on licensed and company-operated locations, with a renewed focus on rural and suburban areas—not over-caffeinated urban neighborhoods where locals already joke that the next Starbucks will open inside an existing store.
The closing stores are often in “major metro areas where increases in wage and occupancy and other regulatory requirements” are making them unprofitable, Johnson said. “Now, in a lot of ways, it’s middle America and the South that presents an opportunity.”
Another major factor putting a dent in Starbucks’ earnings in the States is fast-food chains, particularly McDonald’s, which is continuing to improve the quality of the coffee and specialty drinks they offer, and do so at far lower costs than the coffee giant.
Starbucks took similar action in 2008 when Howard Schultz closed several underperforming stores. Earlier this month, Schultz announced that he was stepping away from the company and made sure to drop a lot of hints that he might be eyeing a political career in the near future.