Starbucks to Shutter Hundreds of Stores as Real Estate Costs Mount
Starbucks is retreating from hundreds of retail locations in North America, including one inside its Seattle headquarters and its high-profile Reserve Roastery nearby, as the coffee chain takes drastic steps to improve its financial performance. The company said Thursday the closures, along with corporate layoffs, will generate about $1 billion in costs tied to severance, lease exits, and other real estate adjustments.
The move marks a significant shift in the company’s physical footprint. After the latest round of store cuts, Starbucks expects to operate about 18,300 cafés across North America by the end of September, down from 18,734 at the close of its fiscal third quarter in June. The reduction is one of the sharpest retrenchments in Starbucks’ real estate portfolio in several years and reflects management’s view that certain stores no longer meet financial or operational goals.
Real Estate Impact
Chief Executive Brian Niccol told employees that Starbucks had reviewed locations on multiple metrics, including whether stores could deliver an environment that met expectations of customers and staff. In cases where the space or site could not support performance objectives, he said, the company opted to close rather than continue operating at a loss.
Among the planned closures are some of the company’s most prominent properties. The Reserve café inside Starbucks’ Seattle headquarters and the flagship Reserve Roastery in Capitol Hill—venues designed to showcase the brand’s upscale image—will shut their doors. These moves highlight how even premium real estate in prime urban locations is not exempt from the company’s broader restructuring plan.
The store closures will ripple through the commercial real estate market, particularly in dense urban areas where Starbucks has historically been a long-term tenant. Landlords with shuttered locations may be forced to reposition space amid shifting demand for food-and-beverage tenants. Starbucks will also incur considerable real estate-related costs, including lease termination fees, which represent a large portion of the $1 billion restructuring charge.
Workforce Reductions
Alongside the store cuts, Starbucks is eliminating roughly 900 corporate jobs, the second major round of reductions this year after 1,100 positions were cut in February. While the company did not disclose how many retail roles will be affected directly by closures, Chief Operating Officer Mike Grams had estimated in June that each store employs on average 18 to 19 people. Starbucks has attempted to transfer employees to nearby cafés where possible, but some will leave with severance payments instead.
Market Pressures
The retrenchment comes after six consecutive quarters of declining same-store sales. Consumers have increasingly resisted Starbucks’ higher prices and have voiced frustrations with long pickup lines, despite management’s recent efforts to improve store layouts and design. The company’s share price has dropped over the past year.
Analysts say closing underperforming stores allows the chain to concentrate resources on locations with stronger potential. Andrew Charles of TD Cowen estimated that 500 stores will be shuttered in what he described as more forceful measures under the turnaround program, according to The Financial Times.
Growth Outlook and Competition
Even as it trims space, Starbucks insists it will eventually expand again. Niccol said the company plans to grow its company-owned store count next fiscal year and may bring back employees once new cafés open. With an annual barista turnover rate near 50 percent, Starbucks already hires tens of thousands of workers each year.
Still, the company faces tougher competition from newer, fast-growing chains such as Dutch Bros and 7 Brew, which have expanded aggressively with a model centered on drive-through locations rather than traditional café real estate. Starbucks’ closest rival, Dunkin’, remains well behind on store count, with about 10,000 U.S. locations at the end of 2024, compared with Starbucks’ network that still exceeds 18,000 even after the latest closures.
Source: GlobeSt/ALM