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For most retailers in the westernised world and certainly the US, now is a time of consolidation, rationalising forecasts and attempting to maximise all possible sales opportunities. Most stores or larger chains will be cutting back on any financial outlays by decreasing their risk on forward stock purchases, as well as readdressing the more expensive areas of the business that may not be the best performing or most profitable.
We appear to be heading towards a period of what most analysts and financial experts have coined, a new era of stagflation; where rising inflation is juxtaposed against stagnating growth. Previous experience shows that retailers are often one of the hardest hit in such times, as consumers typically re-evaluate their non-core expenditures. Essentially what this shows is that households and individuals have less and less discretionary income available to them, with the result being that, when it comes to distributing the monthly pay check, non-essential items get hit the fastest and hardest,
With this in mind then, it may come as no surprise to learn of one area of the retail sector that is currently under the microscope. This is the same area that for so long has been the bastion of wealthy consumerism and global market profiteering - it is of course the high priced coffee culture that is dominated by Starbucks.
Starbucks recently brought back Howard Schultz, the company's founder and chief executive, in a bid to turn around what was a rapidly declining business; due in part to other areas of the retail food and beverage (F&B) sector quickly taking market share through price targeting and availability. News of a slowdown in the company isn't new then, however last Tuesday the actuality of the company's store and fiscal year-end predictions were finally realised.
In addition to a previously stated 100-store closure programme, which was meant to be a realignment of company values and prioritising of poorly performing stores, now comes the announcement of 600 store closures, and the loss of 12,000 jobs. The result - a five per cent increase in its share price.
As a retail professional, I am struggling to comprehend how this announcement which brings about the loss of nearly 10 per cent of the company's workforce should do anything other than send shockwaves through the markets. The company has long had a tradition of mass store-width, and in recent years has dramatically overstretched its building programme, so much so that many city blocks in Manhattan, California and Florida had multiple stores.
Nearly 70 per cent of the closures constitute stores that have been open for 18 months or less and as a result this announcement smacks of gross negligence from a company that has clearly been overly keen on store openings and unaware of potential market cannibalisation. Additionally there appears to have been little evidence of a long term market entry strategy or the realisation that the markets were heading south. If there had been, there may not have been such a dramatic realignment of company values or forecasts. Typically secondary market announcements of this type lead to loss of market confidence, as witnessed recently by Marks and Spencer.
However, as the saying goes, one man's loss is another man's gain, and this situation that Starbucks now finds itself in is a useful lesson to all retailers who may be expanding quickly without sufficient forethought, planning or strategy.
The writer is Head of GRMC Retail Services, Dubai.
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