Starbucks Corp. should've learn a thing or two from once Wall Street darling Krispy Kreme Donuts: You can't expand too quickly or consumers eventually will get sick of you. That looks like it is happening as Americans are tightening their belts. Financial brokerage firm McAdams Wright Ragen forecast in a report on SeattlePI.com that Starbucks may announce layoffs of as many as 1,000 workers in its Seattle corporate headquarters sometime this week or in early February. The move follows an announcement last year that the Seattle-based company will shut down 600 locations around the U.S.
Continue reading below
The report said the cuts would include "some district managers and field employees, but not baristas." That move seems to make sense since the predicted layoffs would eliminate positions that would likely no longer be needed because of the 600 store closings.
The numbers don't look bright for Starbucks, whose fourth-quarter profit dropped 97% to $5.4 million, and its first-quarter 2009 earnings due out Wednesday don't seem to be much brighter.
Like doughnut maker Krispy Kreme, Starbucks has become the victim of its own success, trying to keep up with demand triggering an aggressive expansion in the U.S over the last decade that became too ambitious. In New York City alone, the oversaturation of Starbucks locations seemed commonplace as stores sometimes opened only blocks away from each other.
Meanwhile, Krispy Kreme went from Wall Street high flier as investors flocked to the doughnut maker as a safe haven after the dot-com bust. But that growth would eventually fizzle as American tastes soured on Krispy Kreme, pushing the company to a penny stock, and its profit eroded into loses. The Salem, N.C.-based company announced in December a $5.9 million net loss in its latest quarter.
For Starbucks, its future looks precarious as the global recession has tempered some people's taste for coffee. Starbucks is doing all it can to keep people hooked on its caffeine. The company has looked to expand the Starbucks brand, offering other items on the menu such as sandwiches as well as books and music. But the jury is still out on those initiatives. For now, though, it looks more and more like Starbucks is following the Krispy Kreme path of a meteoric rise followed by an uneasy fall to reality, a ride investors of both companies are having trouble stomaching. - Gerald Magpily
See SeattlePI.com article
