In a letter with ominous undertones, Starbucks Corp. (NASDAQ: SBUX | SBUX Price Prediction) CEO Brian Niccol wrote, “Our size and structure can slow us down, with too many layers, managers of small teams and roles focused primarily on coordinating work.” He indicated he would examine much of the company’s management structure personally and would announce final plans in March.
Niccol also wrote that his plans would not affect store employees. Starbucks frontline workers are not on the chopping block. For those who might be fired, the announcement would create “uncertainty and concern.”
Wall Street has lost its enthusiasm for Niccol, who previously ran Chipotle Mexican Grill Inc. (NYSE: CMG). Starbucks stock rallied when he joined in August. It has been flat since then.
Investors do not see an easy way out for Starbucks, which has 61% of its stores in the United States and China. In the most recent quarter, U.S. comparable store sales fell 6%, and China comparable store sales fell 14%. In the quarter, revenue fell 3% to $9.1 billion, while per-share earnings dropped 24% to $0.80.
Niccol acknowledged the breadth of Starbucks’ deep problems early in his tenure. He sent a letter to investors, employees, and customers. He tried to address problems, which included long wait times and a perceived impression that its stores were no longer customer friendly. Also, he said he would empower baristas, some of whom have joined unions. The letter was aimed at Starbucks operations in the United States.
Starbucks has deeper problems in China where it has a competitor that is larger than it is. Local coffee shop operator Luckin Coffee has over 21,000 stores. Starbucks has just over 7,600.
Niccol’s announcement about layoffs is two months away. He has to address deeper problems between now and then.
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