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Starbucks to close 600 US outlets
Move comes as car makers announce lowest sales in 15 years in double blow to economy.
Last Modified: 02 Jul 2008 23:35 GMT

Starbucks shares rose by almost five per
cent after the news [Reuters]

Starbucks, the US coffee retailer, has said it will close 600 US outlets and cut up to 12,000 jobs in the next year, as the company struggled to compete in the faltering US economy.

The announcement was made shortly before US car manufacturers said sales had plunged to their lowest level for at least 15 years.

Starbucks plans to close the outlets by the end of March 2009 and the related job cuts would reduce the company's US workforce by at least seven per cent.

The news of the cuts lifted Starbucks shares by nearly five per cent.

Valerie O'Neil, a Starbucks spokesperson, said most of the employees affected by the cuts would be moved to nearby shops, but that she did not know exactly how many jobs would be lost.

Peter Bocian, Starbucks chief financial officer, said the decision to make the cuts should improve the company's domestic profitability.

Boyce Watkins, a US economic expert, told Al Jazeera that Starbucks had expanded rapidly and felt it could do no wrong in the market.

Howevr, in reality it was not able to maintain its high growth and the company's move to concentrate on profits and not market dominance was the right one. 

Founder returns

In January, Starbucks brought back Howard Schultz, the company's founder and chief executive, to turn around the company.

Schultz targeted 100 stores for closure - a number that grew by 500 when firm plans were announced on Tuesday.

He has also ended plans for opening new outlets and shifted the company's most ambitious expansion efforts to international markets.

Starbucks said the 600 shops were either unprofitable now or were not expected to meet future profit levels.

All of the targeted units are close to another Starbucks outlets, Bocian said.

"This is validating some of the critics who said they were opening stores too close to one another," said James Walsh, an analyst at Coldstream Capital Management, a Starbucks investor.

Auto slump

GM said its US sales fell sharply
in June [EPA]
US car sales fell to 1,189,000 in June down 13 per cent, according to a report by Autodata, a market research firm.

"The four-dollar (per gallon) gasoline, the recession in housing and a collapse in consumer confidence has kept people sitting on their hands," said David Healy, an analyst at Burnham Securities.

"It's the worst possible situation for the industry, because not only are sales slow but you have a mix problem where the profitable vehicles like the SUVs (sports utility vehicles) are hard to give away and they can't build enough of the small fuel-efficient vehicles."

General Motors, the largest US car maker, said its US sales fell 18.5 per cent in June to 265,937, holding off a challenge from Toyota, a Japanese firm, in the domestic market.

Adjusted for selling days, the decline was 8.3 per cent, the company said.

Toyota reported a 21.4 per cent drop in US sales or 11.5 per cent adjusted for number of sales days in June.

The US remains on the edge of recession after being hit by an international credit crunch and a housing slump sparked by the subprime mortage crisis.

Source:
Agencies
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