Starbucks announces mass store closures and layoffs

Starbucks is taking “significant action” to turn around its struggling business, closing a large number of cafés and announcing a second round of layoffs at its headquarters as part of CEO Brian Niccol’s efforts to resuscitate the troubled chain.

Niccol announced Thursday that Starbucks will close hundreds of stores this month, or about 1 percent of its locations. The company had 18,734 North American locations at the end of June, and the company said it will end September with 18,300 stores.

The company expects its restructuring efforts will cost $1 billion. Shares of Starbucks (SBUX) were flat in premarket trading.

The Fall of Starbucks

In a letter to employees, Niccol said the company underwent a review of its footprint and the locations that will close were ones “unable to create the physical environment our customers and partners expect, or where we don’t see a path to financial performance.”

Starbucks often closes locations for a variety of reasons, including underperformance. But Niccol said this larger-scale effort is more substantial.

“This is a more significant action that we understand will impact partners and customers. Our coffeehouses are centers of the community, and closing any location is difficult,” he said.

Despite the hundreds of closures, which will take place before the end of the company’s fiscal year next week, Starbucks said it will return to growth mode and it also plans to remodel more than 1,000 locations. The new look for Starbucks features a cozier chairs, more power outlets and warmer colors.

In addition to the store closures, Starbucks announced an additional 900 corporate layoffs, on top of the roughly 1,000 layoffs in February. Affected employees will be notified Friday and will receive “generous severance and support packages.” Also, “many” open positions will be closed, he announced.

“I know these decisions impact our partners and their families, and we did not make them lightly,” Niccol wrote. “I believe these steps are necessary to build a better, stronger and more resilient Starbucks that deepens its impact on the world and creates more opportunities for our partners, suppliers and the communities we serve.”

One year on

Niccol joined Starbucks about a year ago, hoping to revive the storied coffee chain. However, the financial results haven’t come to fruition with the stock down about 12 percent and sales haven’t turned around.

He’s pared back the menu by about 30 percent, while also introduced new items to keep the   brand on trend, like protein toppings and coconut water. Food is also getting a revamp, with new croissants and baked goods being rolled out.

In addition to remodels, smaller touches have been integrated like bringing back self-serve milk and sugar stations as well doodles on coffee cups. The company also tweaked its name to “Starbucks Coffee Company” to reinforce its coffee roots.

However, his changes have butted heads with some baristas including uniform changes that sparked lawsuit. And some new drinks are causing stress for baristas for being over complicated to make during peak times.