When all U.S. company-owned Starbucks (NASDAQ:SBUX) stores close Tuesday at 2 p.m., it will highlight even more how the company has put itself at the center of the social policy debates roiling America.
Some 8,000 stores will be closed so that nearly 175,000 employees can receive training on racial bias. It’s part of the damage control after the incident in Philadelphia where a manager called the cops on two black men waiting for a business associate when one asked to use the bathroom, resulting in their arrest.
The training will cost Starbucks revenue – it’s been estimated the company gets 30% of its sales after 2 p.m., which would equate to losing about 1% of a month’s sales by being closed for one afternoon. One analysis estimates the sales loss at $8.7 million. In addition, there may be wage costs for keeping morning-shift baristas on late for the training.
Source: Author’s photo in Palo Alto, CA.
Still, the high-profile action, and CEO Kevin Johnson’s rapid apology to the men in Philly, may have avoided a worse problem by helping fend off a budding boycott movement.
More important, Starbucks doubled down by announcing a new policy that will let people use its bathrooms and hang out at tables, even if they don’t buy anything, as long as they aren’t disruptive.
This generated howls of outrage from conservatives, who view it as turning stores into “absolute zoos,” filled with teenagers blasting music as well as assorted street characters.
Like the author of the last-linked article, I sometimes pop into a Starbucks or McDonald’s (MCD) on the road to use the bathroom, but almost always buy something. The new policy will reduce the incentive to do so.
Starbucks continues to show its Seattle counter-culture roots and position itself on the left side of the political spectrum. It’s done that before, as when then-CEO Howard Schultz announced last year that the company would hire 10,000 refugees after President Trump tightened rules on entry into the United States. That action caused calls for a boycott from Trump supporters.
In other words, Starbucks faces boycotts right and left.
Like the National Football League and its shifting National Anthem policy, Starbucks can’t seem to avoid getting in the middle of the nation’s culture and political wars. Unlike the NFL, Starbucks clearly has chosen a side.
Progressive politics seems to have worked out well for Patagonia, which openly attacked and filed suit against the Trump administration’s decision to shrink the Bears Ears National Monument in Utah. The privately-owned outdoor clothing and gear company is reportedly having its best year ever, as its politics aligns with its environmentally minded customers.
Starbucks is primarily an urban phenomenon, so its social stances could shore up loyalty among its more progressive customer base. Still, Starbucks has plenty of conservative customers too – the love of coffee is one thing that unites red and blue states – and some of them who didn’t leave last year may say adios now.
Not all stores will have a problem with squatters. Those in malls, for example, will be subject to private security forces. However, in some urbanized areas, it’s almost guaranteed to be a problem.
Most of the suburban Starbucks locations I visit don’t have any homeless people around, but one has a bearded man who regularly hangs around outside with his shopping cart. If Starbucks starts allowing carts inside stores, we’ll know it’s jumped the shark.
Store managers are going to have a tough balancing act. They’ll still be responsible for maximizing revenue, but they also know that if they screw up, they likely will share the fate as the ex-store manager in Philadelphia. Good managers, on the other hand, may be able to turn the policy into a positive by visiting non-customers at tables and subtly encouraging them to make a purchase.
If Starbucks lets stores become overcrowded, noisy, and messy, it’s bound to show up in sluggish same-store sales. Already, same-store sales growth in the Americas has been deteriorating, from 7% in 2015 to 6% in 2016 to 3% in 2017 and 2% last quarter, according to eMarketer. This has been a major factor in the stock leveling off from its prior growth path.
SBUX data by YChartsConclusion: Starbucks’ new welcoming policy is not necessarily a negative, but same-store sales are already a problem and will have to be watched closely. Any further deterioration and I’ll have to consider getting out.
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Disclosure: I am/we are long SBUX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
