Starbucks Halts Plans For New Stores Amid Major Sales Drop
Starbucks has scaled back its ambitious expansion plans in the wake of a disappointing earnings report, announcing it plans to retrench and focus on redesigning its existing stores instead.
U.S. sales fell by 6%, the iconic coffee chain reported Wednesday in its fiscal fourth-quarter results, contributing to a 3% drop in revenue year-over-year.
“Our results do not reflect the strength of our brand and what we're capable of,” Chief Financial Officer Rachel Ruggeri said, according to a transcript of the company's earnings call.
“We plan to reduce the number of our new stores and renovations in fiscal year 2025 to accommodate a redesign while also unlocking capital to support our broader turnaround,” she added.
The shift is a major reversal for Starbucks, which announced plans to add 17,000 new stores by 2030 less than a year ago, CoStar reported. The chain opened 722 new stores in the quarter ending on Sept. 30, up 37% from its previous quarter but down from 816 locations opened in fiscal Q4 2023.
It isn't yet clear how many new stores will be opened or renovated in the months ahead, but CEO Brian Niccol said on the call that he is looking to bring “fundamental change” to the chain.
The company’s effort to reverse slumping U.S. sales will include a simplified menu and additional staffing so orders can be fulfilled in four minutes or less, Starbucks executives said. Starbucks will also limit what sort of customizations customers can request as part of the plan to limit long wait times that have led some to abandon the chain.
Starbucks reported a 7% decline in same-store sales this quarter, the largest drop the company has seen since the pandemic began, according to NBC.
The coffee giant is struggling in China as well. Sales in Starbucks’ second-largest market fell by 14% in Q4, according to its report. The chain faces stiff competition from local startup Luckin Coffee, which plans to expand to the U.S. as early as next year.
Starbucks’ recent sales woes are partly due to politically motivated boycotts. The highly publicized unionization effort some employees have undertaken in recent years put a spotlight on what some see as the chain’s low wages, chronic understaffing and oppositional attitude toward organized labor.
The Israel-Palestine conflict led even more customers to boycott Starbucks. Although the company hasn’t had stores in Israel since 2003 and doesn’t provide any funding to the nation’s government or military, influential former CEO Howard Schultz has ties to Israeli cybersecurity company Wiz. Schultz stepped down last April but remains one of the company’s largest shareholders.
Schultz was replaced by Laxman Narasimha, who was ousted by the Starbucks board just five months later. Niccol stepped into the role in September. The former Chipotle CEO managed to boost the Mexican chain’s revenue during his tenure there starting in 2018, Forbes reported.
Niccol has announced plans to step up enforcement of the chain’s hybrid work policy. Starting in January, corporate workers could be punished or fired if they don’t come to the office at least three days a week, according to an internal memo obtained by Bloomberg earlier this week.
