Saturday, May 3, 2008

Problems At Home for Starbucks Lead to Wandering Eyes

While deemed a successful, well-established business, Starbucks, the Seattle-founded coffee chain, reports a decline in net income-28%. Starbucks appears to be losing attention from new customers, while brand loyal customers remain consistent.

A decrease in the company's ability to attract future clientele results in weaker sales. In response to this business threat, Starbucks, over the next three years, plans to reduce the number of stores they open in the US. The corporation's reaction to this decline in customers halts the long-running trend Starbucks had created for covering the US in new Starbucks' stores.

Starbucks plans to open 1,020 locations for this year, a sizable decrease compared to the 1,800 stores that were opened in 2007. Following this years decrease, the corporation plans to cut this number by more than half in the next three years-meaning that less than 400 would open per year. To offset this decline in the domestic market, Starbucks will increase the expansion of international markets. While this includes building 1,050 new locations overseas for 2009, the corporation plans to increase that number to 1,300 by 2011.

The launching of these new locations is key to Starbucks business. However, a new strategy is necessary for existing locations to counter the decline in customers. Starbucks plans to place a stronger focus on the coffee in addition to store renovations in hopes of improving the look and feel of the in-store experience. But, would refocusing customer attention on coffee seems like a weak resolution for reviving customer visits. Perhaps the existing domestic market is sick of the commercialized cafe experience propelled by Starbucks- not to mention the overpriced beverages. The US market appears completely saturated with shop locations, rendering customers unable to appreciate the brand's intangible qualities.

Hopefully, international markets will welcome new locations with an influx of customer visits-but how long before foreign markets react the same way as the US? It seems only inevitable for the massive coffee chain, and when it happens, will a plan to refocus attention on coffee be able to save the company then?

[Adamy, Janet. "Starbucks Slows U.S. Growth Plans as Sales Weaken." The Wall Street Journal. 1 May 2008: B3.]

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