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Starbucks to close triple the normal number of stores as sales disappoint

Starbucks, which has dealt with significant controversy in 2018, will close 150 underperforming stores after sales have slowed down. The store closings will reportedly be focused on urban areas with a higher concentration of Starbucks locations. (Scott Olson/Getty Images)

Starbucks normally closes about 50 underperforming stores per year. This year, after the company was rocked by racial controversy, 150 locations will shut down, CNN Money reports.

"Our recent performance does not reflect the potential of our exceptional brand and is not acceptable," Starbucks CEO Kevin Johnson said in a statement. "We must move faster to address the more rapidly changing preferences and needs of our customers."

Why are so many stores closing?

Analysts were expecting same-store sales to grow by about 3 percent during the third quarter of 2018, but sales are only on pace to increase by 1 percent.

Oversaturation of the market could also be an issue plaguing the coffee chain, which is why the store closings will be focused on urban areas with a higher concentration of Starbucks locations.

Starbucks has also been impacted by increased wage requirements in some major cities, Johnson told Bloomberg:

The closing stores are often in “major metro areas where increases in wage and occupancy and other regulatory requirements” are making them unprofitable, Johnson said. “Now, in a lot of ways, it's middle America and the South that presents an opportunity.”

And not to be overlooked is the incident at a Philadelphia location that resulted in two black men being arrested after an employee called the police on them for being in the store without ordering anything.

The company apologized to the two men, and closed all locations for a half day to give employees diversity training. Outgoing company chairman Howard Schultz said the closing may have cost the company tens of millions of dollars, although Johnson said that is not an excuse for the sales performance.

Competition stepping up

Starbucks, which earlier this month raised its prices for the third time in three months, is also dealing with increased competition from places like McDonald's, which has improved its coffee lineup and offers lower prices on many products.

From Bloomberg:

“The competitive environment has really become a lot stronger in the U.S. and a lot of that is the fast-food chains really improving the quality and breadth of their offerings in terms of hot beverages and breakfast,” said Bloomberg Intelligence analyst Jennifer Bartashus. Americans can “get that same flavor profile at a much lower price somewhere else. That becomes an area of concern for Starbucks.”
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