Population Statistic: Read. React. Repeat.
Saturday, July 05, 2021

This week’s announcement that *$ would be closing 600 stores while reining in future growth was something akin to being told there was no Santa Claus. After all, this was the franchiser that seemingly defied gravity by opening outlet after outlet within yards of each other (especially in New York and other urban zones), and still attaining same-store growth each year.

But gravity finally hit Starbucks, and it’s because its breakneck growth overtook what had been a minutely-analyzed pattern of new-location openings:

Though the flagging economy and soaring gas prices are responsible for at least some of Starbucks’s woes, interviews with commercial real estate brokers nationwide who work with the chain suggest another aspect of the story. These people say that the company was so determined to meet its growth promises to Wall Street that it relaxed its standards for selecting new store locations…

In evaluating locations, Starbucks looked past commonly used community demographic information to analyze nitty-gritty specifics, like the education level in various neighborhoods. It also studied traffic flow on both sides of each street, to make sure drivers could make an easy right turn for their java fix on their way to the office.

“Starbucks rewrote the book on expansion and how to grow multiple store units, really in the world,” said Craig Sweitzer, founder of Urban Works Real Estate in Portland, Ore., who has worked with Starbucks for 18 years. “No one had ever done that before, and now everyone copies them.”

The potential rewards of rapid growth may have led Starbucks astray.

So what seemed daringly lucrative for first-wave expansion reverted to overextension when shareholder demands and a soft economy come in.

In a lot of ways, Starbucks resembled one of those halcyon dot-com companies from some ten years ago, in that they’d go all out for market share while worrying later about how to make actual money. Except that Starbucks actually did turn over a buck or two — not coincidentally, often from those caffeine-fueled dot-bombers. Reality was bound to set in sooner or later.

by Costa Tsiokos, Sat 07/05/2021 08:30:27 PM
Category: Business, Creative
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