Starbucks Plans Store Closures Amid Restructuring
Starbucks announced on Thursday a decision to close some underperforming locations across North America, including its well-known Seattle roastery, as CEO Brian Niccol spearheads a $1 billion restructuring initiative aimed at boosting sluggish sales.
The coffee giant expects to see a 1% reduction in its overall stores in the U.S. and Canada—translating to hundreds of locations—by the end of fiscal year 2025. Niccol aims to revive the brand’s “coffee house” essence to entice customers back after experiencing six straight quarters of declining sales.
Among the closures is the Seattle store that served as the flagpole for the company’s labor union, along with a prominent café that housed an in-house roasting operation.
Starbucks has faced declining sales partly due to increased consumer demand for pricier lattes amidst growing competition.
Discussions with the Workers’ Union, which represents over 12,000 baristas, began in April but have since stalled. In December, some union members staged strikes in various U.S. cities during the busy holiday season.
A Seattle location near the company’s headquarters voted to unionize in 2022 and picked up a contract negotiation dispute on Monday. The union confirmed that another unionized store in Chicago has also been shut down, seemingly unexpected by staff who had previously protested there.
A Starbucks representative stated that the union status of the closed stores “was not a factor” in deciding to close them.
The union expressed concern over the closures, saying the importance of union support for baristas has never been clearer. They suggested that affected employees could possibly be reassigned to different stores.
Analysts from TD Cowen estimate that around 500 Starbucks-owned locations in North America are affected by the restructuring strategy.
Efforts to Improve
In his first year, Niccol has focused on investing in store infrastructure to reduce service wait times and recapture the coffeehouse atmosphere. This effort coincided with a sales downturn in the U.S., attributed to shifting consumer preferences and increased competition.
He acknowledged in a letter to employees that the evaluation process identified stores unable to provide the environment customers expect or those performing poorly financially. As a result, these locations will be closed.
Starbucks plans to finish its fiscal year with nearly 18,300 store locations in the U.S. and Canada, a decrease from 18,734 locations reported in a regulatory filing in July.
Investments in Service Improvements
Investor confidence in Niccol remains strong, stemming from his previous successes at Chipotle Mexican Grill. Analysts note that Starbucks is taking bold steps in its transformation, with store closures exceeding expectations. These layoffs fit within an existing budgetary framework.
Starbucks unveiled plans to cut approximately 900 jobs from its support staff and close numerous open positions as of September 29, 2024, with around 10,000 non-dispatched employees currently on payroll in the U.S.
Niccol emphasized the significance of these decisions for both employees and customers.
Ongoing improvements will also focus on staffing, refining technology use in stores, and enhancing the customer experience. Earlier this year, Starbucks announced the elimination of 1,100 roles, along with a minimal 2% pay increase for all North American employees.
In afternoon trading, Starbucks shares fell slightly, though they have risen about 9% since Niccol’s appointment in August 2024.
