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Starbucks to shutter 600 shops

Times Staff Writer

Amid sagging sales, coffee chain Starbucks Corp. said Tuesday that it now planned to shut 600 underperforming U.S. stores, with the loss of about 12,000 jobs.

The Seattle coffee giant had previously announced plans to shutter 100 stores. In ramping up the closures, company executives cited the need to change with the times. As consumers face higher gasoline and food prices, many are cutting back on extras such as the gourmet coffee drinks that made Starbucks famous.

“We’re understanding that we are in a tough economic environment and we have to innovate and invest,” Pete Bocian, Starbucks chief financial officer, said in a conference call with analysts.

Starbucks announced the cutbacks after the close of regular trading, when its shares fell 12 cents to $15.62, the lowest since December 2003. The stock jumped as high as $16.50 after hours.

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The 600 closures represent about 8% of Starbucks’ company-operated U.S. locations and do not include places where Starbucks products are sold by other vendors.

Starbucks has faced stiff competition in recent months from companies such as McDonald’s Corp., which is rolling out a line of premium coffee drinks, and 7-Eleven Inc., which unveiled a multimillion-dollar advertising campaign this year to promote its freshly brewed coffee.

In addition to competition, Starbucks “forgot what they did well,” said Eli Portnoy, a Los Angeles brand strategist. Rapid expansion and non-coffee pursuits including music sales caused the chain to lose focus on its customers, he said.

“The cracks were there in the armor of Starbucks,” Portnoy said. “Combine that with the weakening economy and a lot of people giving up these small indulgences -- they get a double whammy.”

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In April the company reported that its fiscal second-quarter profit fell 28% from a year earlier to $108.7 million.

Bocian did not specify which stores would be closed but said most were locations opened in the last two years. Most of the closures will be completed by early next year.

For workers at stores being closed, the company said it would try to find them jobs at nearby Starbucks locations. Each store employs about 20 workers; the job reductions amount to about 7% of Starbucks’ global workforce.

“We are committed to continuing to use this much higher level of scrutiny on store performance to ensure we take action earlier,” Bocian said Tuesday.

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Starbucks estimated the closures would cost the company $328 million to $348 million, including expenses for severance pay and terminating leases.

Portnoy said the pain of closures would be well worth the rewards, allowing the company to return to “what made them great in the first place.”

“The core customer will recognize that the company is making an effort,” he said.

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andrea.chang@latimes.com


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