retail news in context, analysis with attitude

There was an excellent column in the Seattle Timesover the weekend by Jon Talton in which he contemplates Starbucks’ current problems and poses the following question:

“What if Starbucks is an artifact of an economy that's not coming back? A time of rising, if fleeting, American affluence as we moved from dot-coms and telecoms, to day trading and house flipping, all based on the biggest run-up of debt in the history of the world. For this venti, triple-shot America, it might have been the quintessential bubble drink.”

Talton suggests that there are plenty of reasons to believe that Starbucks is past its prime: “For all his confident talk to analysts about new initiatives, Chief Executive Howard Schultz led off by emphasizing $500 million in cost reductions for this fiscal year and a commitment to more discipline. Those are the defensive measures of a company no longer young and sexy.

“Indeed, Schultz may have inadvertently let the master-marketer mask slip when he spoke of the continued relevance of its brand. If you have to say it ...

“The company's troubles before the recession are well-known, chiefly overexpansion and the need to make the transition from being a young growth stock. Yet it did not expand merely out of corporate hubris. Wall Street demands high growth, and this was the way Starbucks could appear to deliver rising profit margins. (It went public in 1992, with about 165 stores.) And Wall Street might not be happy if Starbucks aged gracefully into a value stock.”

And he writes, “Schultz is a marketer, and he may have grown into a disciplined manager. In another environment, he might have had time to cut stores, tinker with the menu, find a way to fend off McDonald's and develop new avenues to grow profits.

“Unfortunately, that's not the one we're in now, with a historic cutback in consumer spending, massive unemployment and millions more worrying about their jobs. In that environment, will people still be willing to spend for Starbucks? Will what Schultz calls the emotional connection and reservoir of trust built between the company and customers hold up?

“Looking back, Starbucks' fall was a leading indicator of the trouble massing across the land. Now the question becomes whether the America that emerges from the financial shock of the Great Disruption will have the appetite, and the cash, to fund Starbucks' hopes.”

KC's View:
There is no reason that Starbucks cannot emerge from the “Great Disruption” – I like this name for the current economic situation – is perfectly good shape. As I’ve said here many times, I’ve never walked into a Starbucks that was empty. Ever. There remains significant customer goodwill for the company, even if there’s less cash to spend there.

But as I wrote here on MNB back on January 29, it is time for Starbucks to find another leader.

Howard Schultz must go.

It remains my sense that Starbucks has lost its way, and that blaming the economic downturn almost misses the point. After all, great brands and great thought leaders find ways to transcend these kinds of challenges, profound as they may be. They find ways to reinforce the differential advantages of the brand, and to see the challenges and opportunities for strategic innovation. This doesn’t seem to be happening at Starbucks. Rather, since Schultz took back the reins of the company, it has seemed like management has embarked on a series of tactical decisions designed for short-term fixes rather than long-term growth.

And that’s no way to nurture a brand.

If the nation is going to be “different” after the Great Disruption, then Starbucks – which has in so many ways served as a barometer for the country’s economic well-being – needs to have different leadership, too.