Starbucks’ sales and traffic challenges in the U.S. have been more persistent than expected. | Photo: Shutterstock.
On Thursday, Brian Niccol, the CEO of Starbucks, published a message to the system announcing a pair of brutal moves. The company will close a number of its stores, probably in the 100 to 150 range. It will also lay off another 900 non-retail workers, bringing to 2,000 the number of corporate staffers who lost their jobs to layoffs this year.
The closures aren’t surprising. The company earlier said it was reviewing its North American store portfolio, and closures usually follow such comments. It’s also a sign of the surprisingly persistent difficulty in store sales and traffic.
Closures in and of themselves are not completely bad things. Though it does displace some workers and cost the company money, closures can remove problem stores from the system while reducing internal competition for visits. It’s like pruning dead branches from a tree.
Plenty of companies have thrived after making closures. As we pointed out this week, Starbucks itself is a great example of this. The company thrived after closing hundreds of stores during the Great Recession.
When sales are soft, stop increasing supply.
And yet this news somehow hit harder. It came nearly two years after the chain’s sales challenges started, with a sudden decline following a social media-engineered boycott. They’ve been consistently negative since then, despite an incredible amount of effort on the company’s part, including a management overhaul, reorganization and changes in marketing and operations.
Niccol in his note said that there are “early signs” of progress from the chain’s moves, notably its remodeled stores and its investment in store hours. Data from foot traffic tracking firm Placer.ai, however, suggests the company still has work to do.
Per-location traffic at the company’s coffee shops has declined all but one month since January 2024, according to Placer.ai, including a 5.4% decline in August. It has performed worse than both Dunkin’ or Dutch Bros, its two largest rivals, in all but three months during that period.
Those declines have continued in the first three weeks of September, with only a relatively strong week during the chain’s annual Pumpkin Spice Latte introduction serving as a bright spot. The company can get customers in during special events. It can’t seem to get them in at other times.
The persistence of Starbucks’ sales challenges is surprising.
Workers are heading back to the office, which should drive more business to its cafes. Its primary consumer traditionally doesn’t care all that much about price. It shouldn’t necessarily feel the same pressure from lower-income consumers that chains like McDonald’s and Jack in the Box are feeling.
Competition could be eating into the chain’s business. But that competition doesn’t appear to be affecting rival Dunkin’ all that much.
Perhaps Starbucks’ aggressive courting of younger, social media-savvy consumers with costly, customizable cold beverages may be working against the chain now that such consumers have a lot more options.
And maybe those consumers just do not like how much those beverages cost. We’ve heard more than a few complaints about “$10 drinks” at Starbucks. Those customers have other options.
Customer survey data from Restaurant Business sister company Technomic does find declines on a host of customer experience metrics since 2019, including quality, payment handling and variety.
It has also found declines in the percentage of customers who visit once a month or more.
Regardless, the closures and additional layoffs will put more pressure on the company to find the right solution to reverse those sales challenges, particularly after so many other changes over the past several years.
