An edited telephone interview with Starbucks Chairman and CEO Howard Schultz: How many of the store closures will be in Seattle and Washington...
An edited telephone interview with Starbucks Chairman and CEO Howard Schultz:
How many of the store closures will be in Seattle and Washington? The store closures are across the U.S. and, the truth of the matter is I don’t know how many will be in the Northwest, but I suspect very few.
How many stores does Starbucks typically close each year? This is six times the normal rate. There’s no doubt that we have a head wind in terms of the consumer issues and the macro environment, the likes of which we have not seen in many, many years. … I would say personally, in talking to the heads of other retail and restaurant companies and consumer brands, that I believe that we are in a consumer recession. And at a time like this, it’s so important be very disciplined and thoughtful about how many stores we’re going to open and assess those stores that are not performing, because I don’t think the near-term environment is going to get any better and could very well get worse, so we want to be very conservative and very careful as we go forward this year.
Do you think Starbucks has grown too quickly? I’m not sure we’ve grown too quickly. I think that growth sometimes can cover up mistakes, and as I assess some of the issues we’re facing, I strongly believe that a lot of it is self-induced.
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Much has been made of competitors and other coffee companies, and I honestly believe that competition is not the issue for us, that we control our own destiny. The distinction and the differentiation that we have created in the marketplace in the past, we need to recreate — not embrace the status quo — and reaffirm our leadership position.
I think when we examine the marketplace, the people who are attempting to sell coffee are intercepting traffic and using price as a tool, but they’re buying commodity-based coffee from a third party. Starbucks for 35-plus years has ethically sourced and roasted the highest-quality coffee in the world, and we need to make sure our customers in the marketplace understand that, and that’s one of the things we’re clearly going to do in reaffirming our position.
What are the challenges of ensuring in-store employees have the same passion for coffee that they had when Starbucks was a smaller company? Just last week Fortune magazine ranked Starbucks the seventh-best company in America to work for. Because of benefits that we’ve created, we continue to attract great people. We have to give them the tools and the resources, which means that we have to reinvent and reinvest in training the likes of which we have not done. That’s one of commitments I’ve made.
I think our people are the reason we’ve been successful. The equity of the brand is based on the experience they create, and we want to unleash that creativity and that passion. They have it. We just have to give them the tools and the resources for it to come out.
While you were not CEO, Starbucks launched the warmed sandwich program and canceled the leadership conference you were going to have in Costa Rica last year. How much control did you have over those decisions?
I take full responsibility whether I was engaged in a decision or not. I’m not looking backward. I’m looking forward. I know in my heart that the decision to take the sandwiches out, the decision to reinvest in training in a big way, the decision to bring the leadership conference back, these are the things that are so vitally important to the emotional connection we have with our people and our customers.
Why did you decide to get rid of sandwich warming but not pastry warming in stores? We concluded that morning pastries — you know if you go into a fresh bakery, it’s a wonderful aroma — were highly complementary with coffee and not at all in conflict, where the breakfast sandwiches, that is the problem. The breakfast sandwiches drive revenue and profit but they are in conflict with everything we stand for in terms of the coffee and the romance of the coffee.
We’re going to make decisions that are based on the heritage of the company and do the things we believe our customers want from us. So it’s a short-term decision that I think perhaps others would not have made because of the revenue and the profit, but that’s not how we’re going to build long-term value for our shareholders and create a great experience for our customers.
How much of your U.S. traffic decrease last quarter was because of the economy and how much is unique to Starbucks? It’s very hard to answer that question. I have proprietary data of other companies, friends of mine who are running other retail and restaurant businesses, and in many cases their traffic is down more than we are. Those people who are mall-based are really suffering, because mall traffic in many places in the country is down double digits.
It’s not a time to celebrate weakness of any kind, but we had the kind of quarter that demonstrated that even though traffic is down, we met expectations and most importantly, we’re really seeing the international business begin to hit its stride. We’re going to step on the accelerator internationally to augment some of the growth that we’re going to bring down in the U.S.