Starbucks' Latest Move- Posting Losses!

Only just last month, in this post, I wrote with scepticism of Howard Schultz's most recent plan to revive the company of which he is CEO, Starbucks.

Now comes news, in yesterday's Wall Street Journal, that the coffee roasting giant posted a loss.

The retrenching on which I commented in early July has apparently been a signal that, as I predicted, Schumpeterian dynamics are catching up with Starbucks, and there is little, if anything, they can do about it.

The nearby 6 month price chart for Starbucks and the S&P500 Index shows a net 20% loss of value for the coffee giant- twice that of the index.

It was as bad as nearly 30% only a few days after that post I wrote last month.

In the details of the Journal's article about Starbuck's loss is information that the company is closing 600 US locations. And that

"The company blamed the lower-than-expected revenue growth on a mid-single-digit decline in US comparable-store sales. It described US traffic, measured by average number of transactions per store, as "slow." "

Somewhat comically, at least to me, given my prior posts regarding Starbucks, segmentation, pricing, growth, and Schumpeterian dynamics, the article reports,

"In a conference call with analysts, Mr. Schultz said customers remain loyal, but "they're visiting us less frequently as a result of economic pressures." He said Starbucks will promote value for the fall and holiday seasons, though it will stop short of bundling products at discounted prices. "We're not going to go down the fast-food lane," Mr. Schultz said."

By the way, Schultz reversed himself on breakfast offerings, now keeping them, instead of getting rid of them because their aroma masked that of the coffee in the stores.

Schultz's comments seem to demonstrate he just doesn't understand his market or his own strategy. Some years ago, Starbucks went down market to stoke growth. I noted in articles of that time that this would probably come back to haunt them, and now it is.

Then there was this year's big surprise summer drink offering. What happened to that? Sales are down relative to expectations. And customers apparently aren't buying whatever new brew was introduced.

Now Schultz is promising yet another 'just around the corner' tactical move to rescue the ailing firm.

Can't Schultz and his staff simply acknowledge that they saturated this product/market long ago? That with the more focused competition from Dunkin' Donuts and McDonalds, this market is unlikely, by itself, to be capable of delivering sustained consistently superior total returns anymore?

It's over, Howard. Just admit it, retire, and go spend the fortune you justly earned growing Starbucks in your first era as CEO.

Please stop trying to job your own shareholders.