As announced last month, intense real estate review underway
According to COVID-19 business update authored by Kevin Johnson, Starbucks president and chief executive and Patrick Grismer, chief financial officer, Starbucks is doubling down on its plan to expand its Pickup Store format as it closes 400 traditional stores. The move is part of a larger pivot in its retail development strategy. The Seattle-based coffee chain already operates two Starbucks Pickup Stores, including one at Penn Plaza in New York City and another at Commerce Court in Toronto.
The coffee giant announced last month that it would review its retail footprint to shift stores away from low-traffic mall locations and also expand the number of Starbucks Pickup Stores. In this process, dense, urban markets would be a target for an increasing number of these Pickup Stores, which would be located near a traditional Starbucks cafe, providing a choice to consumers to have the in-store experience or takeout.
Starbucks real estate transformation
As reported earlier in Eatery Pulse News, a seismic shift in the type of stores that are opened moving forward is underway. Prior to the COVID-19 pandemic, a total of 80 percent of Starbucks orders were to-go and the shift to takeout has only accelerated after the start of the health crisis. Customers preferences are evolving and without a vaccine for the coronavirus, social distancing is still an important part of life.
“This strategy aligns closely with rapidly evolving customer preferences that have accelerated as a result of COVID-19, including higher levels of mobile ordering, more contactless pick-up experiences and reduced in-store congestion,” wrote the CEO and CFO. Pickup Stores are also ideal hubs for delivery pickup from Starbucks’ partner, Ubereats.
Plus, as part of the reopening of businesses, the Starbucks development team is once again building and opening new stores. In 2Q, Starbucks opened 200 new stores in the Americas market and another 100 stores will debut by the end of the company’s fiscal year. Starbucks will close 400 locations, which quadruples the number of locations that are typically closed annually. In 2020, this will lead to a decrease in store count and a moderate impact on revenue for the Americas.
Moving into the future
This shifting mix of store formats is part of this emphasis on Pickup Stores, smaller footprints and high-traffic spots. The financial benefit of leveraging technology and reducing the average square-footage of stores can’t be overstated.
“This acceleration of our strategy requires that we assess our existing store portfolio with respect to renovations, relocations and closures,” added Johnson and Grismer. As per a May COVID019 update, they expect the real estate review and transformation to take 18 months,instead of the 3- to 5-year timeline.
In the U.S., the company went from 50 percent of stores open in April to 91 percent open in May. Currently, 95 percent of Starbucks stores are open and the majority of stores closed are located in New York City. It also saw a 20 percentage-point improvement in comp(arable) sales, posting a comp decrease of 43 percent. Executives expect the company to post a drop of 10 to 20 percent in comp sales for the fiscal year with 3Q coming in at a decrease of 40 to 45 percent and 4Q at 10 to 20 percent.
Photo credit: Starbucks (featured preview image)
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