Moneybox

The Reason Starbucks Is Closing 400 Stores

A customer enters a Starbucks Coffee store in San Rafael, California.
Starbucks announced plans to close 400 of its company-owned cafés over the next 18 months. Justin Sullivan/Getty Images

Starbucks announced on Wednesday that it will close 400 of its roughly 10,000 locations in the U.S. and Canada over the next 18 months as the company projects to lose up to $3.2 billion in sales this quarter due to the ongoing coronavirus pandemic. It’s not exactly a retrenchment. The company plans to end this year with 300 more stores than when it started, even accounting for the closures—but that’s half of what the chain had originally been planning. About 40 to 50 of the new locations will only offer pickup or drive-through.

Starbucks typically closes about 100 stores every year due to leases expiring and market conditions. The decision to up that number signals that Starbucks expects the recovery from the current recession to extend far into the new year. The company did not list which locations it plans to shutter, though it did say that they would be in “high-social gathering locations” like campuses and malls. Shares for the company fell by 4 percent in midday trading as the news broke. “As we navigate through the COVID-19 crisis, we are accelerating our store transformation plans to address the realities of the current situation, while still providing a safe, familiar and convenient experience for our customers,” Starbucks CEO Kevin Johnson said in a press release.

While nearly all of the company’s cafés have reopened in limited capacities without in-store seating, the twin health and economic crises continue to discourage consumers from spending and venturing out to public spaces. The shock to Starbuck’s business model has reportedly accelerated its shift to focusing on takeaway service, which it had already been planning to do before the pandemic. In November, the company opened its first Starbucks Pickup store at Penn Plaza in New York City, where customers order and pay through their phones. While Starbucks locations have long served as a “third place” where people could meet and relax, customers in recent years have been placing more and more orders for takeout, perhaps due to the company’s recent focus on mobile ordering. The company estimates that 80 percent of its orders at company-owned stores in the U.S. are to-go. Now that the virus has made people even less likely to dawdle at cafés for an extended period of time, Starbucks expects that percentage to rise.

The new stores will emphasize the use of Starbucks’ ordering app, Uber Eats, walk-up windows, and curbside pickup to facilitate social distancing. Some store layouts will also begin including pickup counters that exclusively cater to mobile orders and food delivery services. The company hopes that large U.S. cities will eventually host a mix of cafés and pickup locations that are located within walking distance of one another in order to reduce crowding.

Starbucks’ announcement hints at what may be in store for the next months, and perhaps years, to come for the food industry. The S&P index of restaurant stocks fell by 2.7 percent shortly after the company’s announcement, the most in nearly a month, as investors worry that the industry might not bounce back as quickly as hoped. Closures for other large brands and small businesses is more than likely, while transitioning to contactless, to-go service may be a wise long-term bet as the pandemic continues. We’re still living in a to-go economy, and that doesn’t look likely to change anytime soon.

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