Analysts and investors liked what they saw, as Starbucks (Nasdaq:SBUX) announced it was closing 600 poorly performing stores today, and get rid of up to 12,000 full- and part-time workers. The stock surged by 6 percent in response to the news.
A number of factors have played into the decision, including a drop in consumer spending, economic conditions, stores too close to one another and increased competition. The perception by customers that it had left its core business and wasn't as good as it used to be is another key factor in the overall performance and decision by the company.
Essentially what this does, is lay the groundwork for 2009, as 2008 has to be considered over for all practical purposes. Now they must lick their wounds and regroup.
"At this point, management has decided that 2008 is a wash and to throw in everything but the kitchen sink to get ready for growth in 2009 and beyond," said William Blair analyst Sharon Zackfia.
Most of the growth will be in international markets, with the projected 250 new stores in the U.S. being dropped to under 200 next year.
Observers were heartened by the move, saying it shows that CEO and founder Howard Schultz is taking the right steps to move the company forward.
Many have criticized the closeness of stores and the quality of the product, thinking they were focusing too much on ancillary things like their entrance into the music business, rather than what made them what they were in the first place.
Some ego had to be swallowed here, but better that than their business. The former media darling of the business world has its work cut out for it over the next several years, as competitors like McDonalds (NYSE:MCD) strike hard at its core products.
This is a least a move in the right direction to prepare for the coming competitive battles the company faces.
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