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Will We See More Starbucks Closings?

The buzz about Starbucks from last week’s Quick Poll may be hard to swallow for fans of the ubiquitous coffee chain, with more than eight in 10 (84%) respondents choosing “yes” as an answer to the question, versus a mere 16% who seem to believe the slew of recently announced closings will suffice. Jim Hughes, a transactional attorney with Greenberg Glusker who specializes in real estate, believes that whether there are more closings, the move to reduce the number of stores is a smart one for Starbucks.

I think that this is frankly an excellent business move for Starbucks. Starbucks is a premium brand that has become a little over extended. They’ve made coffee upscale, and in that, they’ve done something that the brands like Duncan Donuts and others weren’t able to do, and they’ve stuck a chord with consumers. But you literally have a Starbucks in a grocery store a couple doors down from a standalone store. I was concerned just by the proliferation of stores in the last year or so, that they were diluting the brand and overextending themselves.

The good thing about these closings is that during good times, if a company announces a downsizing, it’s generally perceived as a weakness in the company, but at time like this, it’s construed as a good business move. They need to cut stores and they need to do it at a time when it’s perceived as good business rather than a sign of weakness. By choosing this opportunity to right size they, I think, will be perceived by the market as an astute retailer looking for an opportunity to strengthen the brand.

I don’t think even Starbuck’s knows at this point if they will close additional stores. I think they will wait to see what the market is like following the closings in the near term, then if they need to make additional cuts, they will. The standard should be one fewer store than they need. To maintain its cache and continue to command five-six bucks for a cup of coffee, the brand needs to be less than a commodity, and they have very much become commodity at this point.

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