Today's Starbucks Corp. (NASDAQ:SBUX) is not the high-flying growth company of five or six years ago. Gone is the escalating stock price, along with the multiplying locations. The Seattle company's downsizing has been well documented, with cuts in everything from staff to retail locations. One upside might be the reductions in rent the company is negotiating with landlords, according to Bloomberg.
Starbucks is reportedly looking to negotiate a discount of 20% to 25% in some of its existing leases. In expensive areas such as Manhattan, where average retail space rents for $115 per square foot, according to the Real Estate Board of New York, those possible reductions could be a big cost saver. Overall, those leases would cover some 7,035 locations in the U.S. as of March 29.
What would Starbucks do with the millions it might save in rent? Most likely pile it into a cash cushion, since its revenue has shown signs of weakening. An acquisition may be out of the question right now as any addition may be considered too risky, especially since Moody's Investors Service downgraded Starbucks' debt rating to Baa3, one notch above junk, on May 14.
The upscale coffee franchiser's options seem limited, but it needs to act quickly with McDonald's Corp. (NYSE:MCD) poised to open 1,000 McCafes in Europe. If they're successful, Mickey D's next stop is the U.S. That's not good news for Starbucks as Mickey D's has already forced the Seattle company to change its menu. If McCafes start to gobble up Starbucks' market share, even low rents may be too little too late. - Gerald Magpily
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