Thursday, January 29, 2009

At Starbucks, A Tall Order For New Cuts,Store Closures

The Wall Street Journal - Starbucks Corp., posting a 69% drop in quarterly profit, said it will close another 300 stores and cut 6,700 workers as it continues to reel from overexpansion and a sharp sales slowdown amid the recession.

Looking to share the pain, Chief Executive Howard Schultz asked the board last week to reduce his annual base pay of $1.2 million, according to a spokeswoman. Mr. Schultz suggested a token salary of $1, but the board's compensation committee ultimately decided to cut it to $10,000. Once benefits costs are deducted from his check, Mr. Schultz will earn less than $4 a month in base salary, though his pay package includes compensation in stock.

Mr. Schultz said the closures are happening in places where Starbucks built stores under the assumption that the economy would remain strong. "That economic environment no longer exists," he told investors on a conference call. The company has been particularly hard hit by home foreclosures in California and Florida, he said.

Under its latest plan, Starbucks will close an additional 200 locations in the U.S. and 100 locations internationally by this fall. That is on top of more than 600 store closures the company announced last year. The chain currently has nearly 17,000 outlets and 167,000 workers.

Starbucks plans to lay off 6,000 store workers because of the closings, though some will be placed at other stores. It also will cut 700 nonstore workers at its Seattle headquarters and other field offices. Starbucks is still finalizing the list of stores that will be shuttered.

Once one of the fastest-growing retailers -- and hottest growth stocks -- Starbucks has had a spiraling fall from grace. In its zeal to hit an expansion target of 40,000 locations globally, the company made poor selections for new sites, distracted itself with forays into movies and music, cluttered stores with too much merchandise and lost its focus on coffee.

High prices, meanwhile, are going out of style fast. Starbucks grew by creating a luxury image with lattes and Frappuccinos that can top $4 apiece. Among Starbucks' biggest challenges now is how to reposition its brand in a recession.

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