SEATTLE — Starbucks Corp. said Tuesday that 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 U.S. 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 U.S. company-operated stores that opened in the past two years, chief financial officer Pete Bocian said during a conference call.
Downtown Denver Starbucks employees said they’re not worried about the upcoming closures. They were notified about the plans Tuesday but were not told which stores are on the list.
The company said it is not yet revealing which stores are targeted for closure “out of respect and dignity for our partners, and our desire to share this information with impacted partners first.” Starbucks refers to its employees as partners.
The company said stores would be notified approximately 30 days before their anticipated closing date.
“Nobody knows right now,” said a worker at the store at 16th Street and Tremont Place who declined to be identified. “But Starbucks is a good company, and I’m sure we would absorb workers.”
About 12,000 workers, or 7 percent of Starbucks’ global workforce, 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 might be lost. Starbucks estimated $8 million in severance costs.
At Denver’s Starbucks at 16th and California streets, which opened in September 2006, Matt Schmalz and Miles Mulvenna said the reorganization indicates to them that company executives are taking the necessary steps.
Besides, they both said, their store is close to the convention center and just steps from the light rail — and therefore busy.
“We get a lot of business,” Schmalz said. “Starbucks is pretty good at taking care of their employees.”
Starbucks workers are trained identically at all stores, so many already pick up shifts at other locations when needed, Mulvenna said. If they had to drop into another store, they could do it easily, he said.
The company forecast up to $348 million in charges related to the closures, $200 million to be booked in the fiscal third quarter ended June 30. Starbucks reports third-quarter results at the end of July.
Most of the stores to be closed had been on an internal watch list for some time. They have not been profitable and are not expected to be profitable in the foreseeable future, and the “vast majority” are near an existing company-operated Starbucks, Bocian said.
Java-come-lately stores
Some analysts had wondered whether Starbucks’ explosive growth in the U.S. 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 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.
Ed Trujillo, who doctored up his venti drip Pike Place Roast at the Starbucks at 16th and Curtis streets Tuesday, said he would be bummed if the store closed. But he would go to another one nearby if it was convenient.
He stops at the store about twice a day on his way to the gym.
“I quit drinking, so this is a place for me to come that’s healthy,” he said. “I substituted booze for coffee. I love this place. I love the music. I love the coffee.”
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 U.S. consumers who were feeling the pinch of higher food and gas prices.
Staff writer Elizabeth Aguilera contributed to this report.
