Starbucks Announces Store Closures and Job Cuts in Restructuring

Starbucks Corp. is set to implement a significant restructuring plan that includes closing stores and eliminating approximately 900 jobs as part of an effort to enhance its business strategy, led by Chief Executive Officer Brian Niccol. The coffee giant plans to invest $1 billion in this initiative, which aims to create a more inviting atmosphere in its locations.

As part of this restructuring, Starbucks will reduce its overall store count in the U.S. and Canada by 1%, bringing the total to around 18,300 locations. This move follows a comprehensive review of its coffee houses, during which the company identified certain stores that were unlikely to achieve profitability. In response, Starbucks will focus on enhancing the experience at stores that align with Niccol’s vision for the brand.

According to Niccol, early results from revitalized coffee houses indicate that customers are visiting more frequently, staying longer, and providing positive feedback. In a letter to employees, he expressed optimism about the changes being made.

Despite these efforts, Starbucks’ shares experienced little movement in pre-market trading, reflecting investor caution. The stock was down 8% as of the close on Wednesday, in contrast to a 13% increase in the S&P 500 Index. Analyst Jacob Aiken-Phillips from Melius Research noted that the restructuring does not sufficiently address the issue of rising prices, which have become a concern in the current competitive landscape. He pointed out that the turnaround still has “a long way to go.”

Niccol has been at the helm for approximately a year, attempting to steer Starbucks through a challenging period marked by six consecutive quarters of declining same-store sales. The restructuring plan includes efforts to rejuvenate locations by increasing seating and adding electrical outlets to encourage longer customer visits. However, these changes have yet to significantly impact the company’s financial performance. This marks the second round of job cuts since Niccol took over.

The closures may affect some of the smaller mobile pickup stores, which primarily handled mobile orders. Starbucks has confirmed to Bloomberg News that some of these locations will be converted to full-service cafes. Aiken-Phillips emphasized that the previous management’s strategy of solely mobile pickup stores is no longer viable, stating, “That format is done.” The company is focusing on creating a “third place” where customers can relax and enjoy their coffee.

In the most recent fiscal third quarter, Starbucks reported sales and profit figures that fell short of expectations. The company is also contending with rising competition from smaller chains in both the U.S. and China, its two largest markets. These competitors are increasingly offering cheaper beverages and faster service.

In response, Starbucks is simplifying its menu to reduce drink complexity and alleviate wait times. This strategy also aims to make room for new items that cater to evolving consumer preferences. The company has expanded its offerings of sugar-free options and introduced protein-infused beverages, appealing to health-conscious customers.

While analysts and investors generally support the strategic changes, there is growing concern regarding the costs and timeline associated with Niccol’s turnaround plan. Recent investments aimed at revitalizing the brand have adversely affected profitability, leaving stakeholders anxious about the path forward for the iconic coffee chain.