This situation report on Star bucks analyses the current situation of the company that shows diminishing profits, falling stock prices, augmenting costs and a dwindling business portfolio. The evaluation has forced the company to implement a transformation strategy that focuses on cutting down costs thus Star bucks is closing down 600 stores which will result in a lay off of 12000 employees. The situation is a result of the recessing economy and also the company’s focus on expanding rather than improving the existing portfolio. The company needed a change of strategy and this strategy is apt to taper the bad effects of the previous policy and the economic crunch. The report’s basis is to convince the corporate office not to close the new site that is about to open in two weeks. I being the General Manager believe that a lot has already been invested in the opening of the new site that can prove to be profitable since a closing down of a site that has not even started means a waste of all that had been invested in the opening of the new store.
Closing down of this new store shall result in a waste of monetary and non-monetary investments already made. The advertisements have been running since a month and the staff has already been hired and even trained thus now a closure of this site will tarnish the image of Starbucks in the eyes of the customers and will also instill further insecurity amongst existing employees of the company. The customers might get the idea that Starbucks has lost its luster and the age old saying that there is a Star bucks at ever corner shall no more be a fact. Star bucks might loose its credibility in the eyes of its customer base. This strategy has resulted in a lay off employees which will make the existing employees insecure and will also demotivate them resulting in operating inefficiency. The sources used in this report are a case study provided by the instructor and the external sources are renowned newspapers thus the facts taken from these articles have been published in these newspapers. Thus the sources used are reliable and the information is authentic and properly referenced.
Starbucks Coffee Company is one company that has become a lifestyle or rather a need than a simple product. The company has stores all around the globe roasting the best quality Arabica coffee. Recently the company had a change in policies since like every company they aim to secure their future for long term growth and higher customer satisfaction. This transformation strategy has led the company to be rather less reluctant and finally understand the necessity of closing a number of stores for a variety of reasons. The company has always been particular in keeping their employees motivated so laying off employees was a far fetched notion but a rigorous evaluation of the U.S. stores has forced them to decide to close 600 underperforming stores in order to improve their overall portfolio (Allison, 2008, p.A5).
Being the General Manager of a new store in US that is going to open soon but has had its soft opening, it is important for me to analyze the situation prior to form a basis for convincing the corporate offices to withdraw the order of closing this store. Since a lot has already been invested and the staff has been hired and trained plus advertisement has been flowing in the market and after all this hard work I think it is not feasible to close this store before it even starts to operate in the market. The major objective for star bucks to implement this strategy and close down stores is to boost its stock price although around 12000 employees will loose their jobs. The foundation of the matter is the recession of the economy that has forced to cut down costs and consider long term consequences. It is essential to close down underperforming stores in order to cut down costs and these stores include those at unprofitable locations or giving low returns overall (Martin, 2008, p.A5).
The report will include the situation that exists, the key facts that have contributed to this situation, where do we stand currently , what are we unsure of specifically followed by a conclusion. The report is purely informational and it will not include any suggestions for improving the situation.
The Situation that Exists
The current situation is not favorable since Star bucks is feeling the economic crunch and thus has been forced to go against their policy of putting their people first and close down stores which will result in 12000 laid off employees. Their profits and stock prices are going down and costs are augmenting with time. Star bucks has promised to make efforts to help these laid off employees new jobs but it is rather going to difficult since they will have lesser stores now. It is not just the economy but the company’s focus on excessive growth by opening new stores every fiscal year has contributed mostly to the current situation. Their strategy to transform and focus on improving the current state of stores and also to enhance long term growth is apt in this situation since they had no option but to close down their underperforming stores in order to make sure the company has a stable future (Ahrens, 2009, p.A2).
The key facts that have contributed to this situation
A rigorous evaluation of the stores in US have helped Star bucks to realize the importance of a change in order to improve the current situation of the company and ensure future stability and growth. The major reason is to strengthen the US portfolio for the company by closing down underperforming stores and to have a few that are contributing to the company’s growth. The company wants to get over the falling stock prices, falling profits and declining growth prospects and be able to enter fiscal 2009 by focusing more on operating efficiency, improving customer satisfaction and ensuring long-term value for partners, customers and shareholders. The recessive economic trends are the major contributor to the current situation since they have been forced to cut down costs and enable growth and increasing profits plus stock prices. The underperforming stores are simply adding to the costs rather than growths since a lot of these are in non-profitable locations but the problem lies in the company’s focus on expanding rather than stabilizing and maintaining what they have. The company’s stock prices have also been falling with falling profits thus they required a new strategy to fuel the engine of the company and this transformation strategy that includes cutting down costs by cutting down on underperforming stores is required by the company (Allison, 2008, p.A5).
Where do we stand currently?
Although the situation is not quite good but this store that the office wants to be closed has not even started operating and it can prove to be a profitable business unit. Since a lot has been invested and we are just two weeks away from the grand opening with a soft opening already done. The closing down of this store before it even starts will simply add up the already increasing costs since the company has invested two million dollars for this site and if it closes down without churning any operating profits this huge investment will go in vain. The staff has been trained and hired which will be a wastage cost again and advertising has been purchased and is running since a month. The hype has been created and it’s too late to close down since this will further tarnish the image of the company and even negatively affect stock prices. This site can prove to be profitable since the soft opening has given reasons to have optimistic expectations from the site. The close down of this site will mean a waste of all the investment and also a bad image amongst customers especially those waiting for the store to open thus I shall advise the office to not to close down this store.
What are we unsure of specifically?
We are quite unsure of the effect of this strategy on the existing employees since closing down means 12000 employees being laid off and the existing employees might get insecure and be demotivated resulting in inefficient work. The customers might get the idea that Starbucks has lost its luster and the age old saying that there is a Star bucks at ever corner shall no more be a fact. Star bucks might loose its credibility in the eyes of its customer base.
Starbucks has implemented the transformation strategy that focuses on cutting costs by closing down underperforming stores in order to stop the falling of profits and stock prices. But this situation has resulted from the recessing economy and the company’s focus on only expanding rather than improving what they have and ensuring long term growth. The company realized a bit late that they need a new strategy. The company requires a change and this strategy is the only choice thus what ever the consequences but it will lead to improvement in the US portfolio and long term growth plus stability.
Ahrens, Frank. (2009). Starbucks Closing 300 Stores, Laying Off Nearly 7,000. The Washington Post, pp. A2.
Allison, Melissa. (2008). Starbucks closing 5 percent of U.S. stores. The Seattle Time, pp. A5.
Martin, Andrew. (2008). Starbucks to Close Stores and End Sandwich Sales. The New York Times, A5.