July 1, 2008 -- With the coffee sitting around getting cold at hundreds of Starbucks across the country, the nation's largest coffee chain announced today it will close nearly 600 stores that were not profitable.
As national economic growth grinds to halt, worried consumers have saved their pennies (more likely, $5 bills, if we're talking about those mocha whip fraps) and visited Starbucks less frequently. In the three months that ended on March 30, Starbucks profits fell 28 percent compared with the same time a year earlier.
"We believe absolutely we are seeing a major impact from [the] economy," Starbucks CFO Pete Bocian said in a conference call with investment analysts today.
Previously, Starbucks had announced it would close 100 poorly performing stores. But with nearly 600 stores now slated to be closed, it is almost as if Starbucks faces its own version of the collapse in the housing market.
More than two thirds of the stores to be shuttered opened since the start of 2006, with the largest number opening in 2007, Bocian said. That sounds eerily similar to the same period when there was a surge in home sales financed with risky loans, many of which are now in default or in foreclosure.
In April, Starbucks CEO Howard Schultz told Terry Moran in an interview for "Nightline" that the coffee business had been affected by the mortgage crisis.
"I think people also underestimate the impact of the economy right now, which is very acute, I think more significant than people realize," Schultz said. "I was in California last week and I got a tour of the impact of subprime issues and the foreclosures around Starbucks stores, and it was stunning to me just how many empty houses there were."
The company would not disclose the exact locations of the stores that will start closing starting later this year.
"The stores targeted for closure are spread relatively proportionally across all major U.S. markets," Starbucks spokeswoman Deb Trevino said in an e-mail to ABC News. "Consideration was given to the impact of current and anticipated economic trends in making this decision."
Starbucks also said it would open 200 fewer stores than expected in 2009. These changes are in addition to the plans to eliminate breakfast sandwiches, as the company re-focuses coffee, offering a new, smoother blend – Pike Place Roast – in every store, and grinding and brewing fresh batches of coffee more frequently throughout the day.
At the end of March, there were more than 16,226 Starbucks stores globally and 11,434 in the U.S.
The store closings will result in full and part-time jobs being eliminated, though the company says many employees will be placed in stores that remain open. Earlier this year, Starbucks announced it would cut its workforce by 600 jobs.