Thursday, January 29, 2009

This Just In! People Refuse To Pay Five Bucks For Coffee!

As I have mentioned previously, I have never understood the consumer's allure for Starbucks coffee. I like the taste of the stuff, and if my wife is buying, I will gladly enjoy a venti house coffee. But paying upwards of five dollars to turn a cup of coffee into what amounts to be a milk shake just simply never made any reasonable sense.

Now with the economy on the toilet. Starbucks is hitting on hard times... It closed hundreds of stores last year, and is now realizing that people have even less money for such foolishness now than they did before the holidays. So Starbucks is really pulling out the stops. From the Financial Times:

Starbucks is to close more stores, sell a newly delivered $45m corporate jet and cut headquarters staff and worker benefits as it battles a slump in sales that has tracked the broader collapse in global discretionary spending.

The coffee retailer said on Wednesday that it would shut 300 more “underperforming” locations – 100 of them outside the US – after a 9 per cent fall in comparable sales in the last three months of 2008. It announced a first wave of 600 US store closures last summer.

The move will result in about 6,000 job losses, while an additional 700 corporate and support jobs will also be cut – half of them at its Seattle headquarters.

Howard Schultz, chief executive, said that since early December the company had seen a far more rapidly deteriorating global economy than it had expected before the holidays.

“The data shows that by virtually all statistical measures the pace of weakening in the business environment and global economy we were anticipating has been accelerating,” he said.

Mr Schultz has asked for his salary to be cut to less than $10,000 – from more than $1.2m previously – and the company is selling two of its three corporate jets, including a Gulfstream 500 delivered in December.

US comparable stores sales fell 10 per cent during the quarter, as fewer customers spent less on their visits.

International comparable sales also turned negative for the first time, with the biggest slowdowns seen in the UK and Canada, its two largest international markets. Starbucks has about 670 company-owned stores in Britain, and around 7,000 in the US.

The company said that it was also further reducing its planned new store openings in 2009, with 140 new US stores, down from its previous target of 200, and 170 new international stores, down from a previous target of 270. It is also cutting back on plans for new licensed stores.

I wonder if we'll look back a few years from now and look at the days of gas guzzling SUVs and premium coffee shops and the other examples of our high-spending, high risk economy as the "good times", or as times of wretched excesses. Either way - just as our grandparents exercised thrift as survivors of the Great Depression, I think we will all think twice before we return to our spending habits of old.

(By the way, by belittling Starbucks, I do not ignore the human toll this is taking. I have a nephew who is a barista at Starbucks. I hope he survives the cuts!)

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