In December when Howard Schultz handed the c.e.o. baton to c.o.o. Kevin Johnson he made it clear that his work reshaping Starbucks retail had only just begun.
A few years ago Schultz connected the dots to explain a holiday slump in store traffic even as record sums were loaded into the company’s loyalty and gift cards (now at $2.65 billion). As the recession faded Schultz noticed the firmament supporting brick and mortar retail had shifted. The total number of shoppers visiting Starbucks on their holiday errands eroded a bit that year… as sales increased. He voiced a clear warning that traditional holiday patterns were changing citing a 6.4% decline in foot traffic marking a five-year trend. The amount of new retail space that opened annually has since fallen from 300 million square feet to less than 45 million sq. ft. He recognized that Amazon and the surge of e-commerce was the source of the anomaly. By 2015 e-commerce accounted for 12% of all retail revenue and is expected to reach 14% of retail value by 2018.
To compete he advocated a retail revolution to “premiumized, experiential consumer venues.” Unwilling to concede the retail coffee shop experience he invented, Schultz committed to find formats that provide even greater profits.
At the heart of this challenge is “experiential” retail as evidenced in his Reserve Roasteries. Retail will neatly divide into digitally-efficient quick stops where 6 million loyalty card holders per month already charge 25% of total US sales to Starbucks cards with mobile order and pay accounting for 6% of transactions —and a few elaborate, coffee palaces. It is the latter where Schultz intends to make a lasting mark. Starbucks is now the #2 US coffee brand. He said that “breakthrough innovation and experiential design” will be his primary tools in realizing a vision to expand and re-energize the super-premium coffee category. He intends to double foot-traffic compared to regular Starbucks stores while increasing ticket size by 3.5 times. The flagship Roastery in Seattle already yields four times the average transactions per store.
At 63 this is likely the last time Schultz will re-invent coffee retail. There is a good chance of success, after all has done it before – twice.
- Dan Bolton