“Lax Real Estate Decisions Hurt Starbucks” reports today’s The New York Times. Not hard to figure out four days after the company announced the closing of 600 stores! But the store closings are the symptom, not the cause, of Starbucks’ problems.
In my previous post, I alluded to some of the company’s research, which supported its aggressive and patently foolish march to place a Starbucks on every available inch of available real estate. It’s worth repeating: 1. long lines at existing stores led to the conclusion that to ease the wait, the company should add another location within a stone’s throw of the successful store; and 2. research that showed that customers would not cross the street to buy Starbucks’ premium coffee, the same coffee for which they would pay $4 per cup and for which they would forgo the fee cup of coffee often awaiting them in their work place or home.
Isn’t it amazing that no-one looked at these conclusions and screamed, “the emperor has no clothes” ?
Well maybe not, if we give some serious thought to what drives endless (and too often, mindless) corporate expansion. It’s probably no coincidence that the pace of store openings increased dramatically in the weeks and months before the close of each fiscal period.
Why might this happen? Is it possible that the corporate expansion strategy is targeted as much to satisfying the expectations of the financial analysts as it is to keeping the company competitive and healthy? You know, it’s funny, if you place the typical successful CEO in a room with a bunch of average people who offer suggestions as to how to run his/her company, he might politely listen but few would expect him to return to his corporate suite and implement each suggestion. But when Wall street analysts lay out expansion targets, articulate strategies for global expansion, to offerings on the new menu or the music that might be played as a backdrop to the sipping of Starbucks black gold, somehow management took copious notes and couldn’t move fast enough to implement these untested (and unsolicited) suggestions.
I was hoping that a fellow like Schultz, who has much more than a financial stake in seeing his company flourish again might have the backbone to tell the financial community that maybe there are limits to the number of Starbucks stores that the world will support, that Starbucks might attract more business by looking deep into the company’s core to find additional offerings. I was hoping that Schultz would do more than the tired Wall Street two –step of cutting employees and shuttering stores. The company has a stellar reputation for how it treats its people and its customers. Now, it's time to live up to its own values, not those imposed by others.
I am still hopeful, Mr. Schultz. At one time you built a truly world class brand. Let’s see what you can do if you put your mind to it!
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