1,100 Jobs Cut in February as Well
North American Store Sales Decline for Six Consecutive Quarters
Seattle Headquarters Store Also Targeted for Closure
According to the Financial Times (FT) on September 25 (local time), Starbucks, the world's largest coffee chain, will close hundreds of stores in North America and lay off office staff. This marks the company's second major restructuring this year, following a reduction of 1,100 employees in February.
On this day, Starbucks announced a restructuring plan that includes closing some stores in North America and laying off about 900 non-store employees. In a memo to employees, CEO Laxman Narasimhan stated, "We will close stores that cannot provide the environment expected by customers and staff or that are unlikely to improve their financial performance."
The closures will include the Reserve store inside Starbucks' Seattle headquarters and the flagship Capitol Hill Reserve Roastery. As a result of these measures, the number of Starbucks stores in North America is expected to decrease from 18,734 at the end of June to about 18,300 by the end of September. The company said that baristas working at the affected stores will be transferred to nearby locations or offered severance packages.
Starbucks expects the restructuring to incur costs of about 1 billion dollars (approximately 1.3 trillion won). Of this, employee layoff costs are estimated at 150 million dollars, while restructuring costs related to store closures are projected at about 850 million dollars. Andrew Charles, an analyst at TD Cowen, estimated that around 500 stores will close, describing it as "a more aggressive normalization measure."
The main reason for Starbucks' large-scale restructuring is poor performance. Sales at North American stores, which account for 70% of the company's revenue, have declined for six consecutive quarters. The FT analyzed that "high prices and long wait times have led to customer dissatisfaction."
Since taking office last year, CEO Narasimhan has promoted service improvements and store interior upgrades, but has not been able to overcome the weak performance. In the second quarter (April to June), Starbucks' sales increased by 4% year-on-year, but net profit plummeted by 47%. Starbucks' share price has fallen by nearly 13% over the past year.
However, Starbucks stated that it plans to increase the number of company-operated stores in the next fiscal year. CEO Narasimhan said, "When new stores open in the future, I hope to welcome back the employees who left this time."
Currently, Starbucks operates about 18,300 stores in North America, far ahead of Dunkin', which has 10,000 stores. However, competition in the coffee market is intensifying as new rivals such as Dutch Bros and 7 Brew, which focus on drive-thru service, are rapidly expanding.
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