Investors Slam Starbucks’ Plan for Web Portal

In an unusually strong rebuke to a leading company’s Internet strategy, investors trimmed the stock price of coffee purveyor Starbucks Corp. by nearly a third Thursday after it laid out plans for a “lifestyle” Web portal that would sell furniture and kitchen goods as well as coffee.

“I just don’t see how they can succeed as an Internet portal the way they have succeeded as a coffee retailer,” said Jerome Castellini, fund manager for Chicago-based CastleArk Management, which owns about half a million shares of Starbucks.

“If not for the Internet stuff, the stock would be $40 today,” Castellini said. The shares closed at $26.94 on Nasdaq, down $10.63, or 28.29%.

In this case, investors’ reaction departed strongly from what companies have come to expect. Many public firms have seen their stock prices soar merely because they have announced a new Web strategy.

Starbucks’ “traffic is measured in seats coming into the store. It’s not the eyeballs on the Web,” said David Cooperstein, an analyst at Cambridge, Mass.-based market research firm Forrester Research.

Starbucks Chief Executive Howard Schultz has argued that by placing advertising at the company’s 2,000 retail outlets and on millions of paper cups, he can drive many of his 10 million customers a week onto a new “canopy” Web site.

Starbucks has established a strategic relationship with Oxygen Media, a New York-based company founded by former Disney/ABC Cable Networks President Geraldine Laybourne, which is developing a network of sites for women. Starbucks is also an investor in Talk City, an Internet chat site.

Schultz has already made big money on the Web. His early $2.5-million personal investment in Web auctioneer EBay is now worth more than $100 million. But the lack of faith in Schultz’s ability to pull off the Internet caper was revealed when four brokerage houses downgraded Starbucks after the company revealed Wednesday that a $4-million investment in Internet projects would pull earnings below previous forecasts.

“People don’t think of themselves as Starbucks lifestyle people,” said Forrester’s Cooperstein. “They don’t go to Starbucks for the shopping experience; they go for the coffee.”

Integrating the computer systems of several companies to offer a single e-commerce site would also be unnecessarily expensive and complex, he said.