Starbucks CEO: The Amazon-Whole Foods deal shows where retail is going

Julia La Roche
Reporter
Starbucks’ Howard Schultz poses for a portrait at his new Teavana store in New York, October 23, 2013. REUTERS/Carlo Allegri

Starbucks (SBUX) is well aware of the challenges that come with competing in the rapidly evolving retail environment. Its embrace of the digital revolution has made the coffee chain look almost as much like a tech company as it does a food service company.

On a call with analysts on Thursday evening, CEO Kevin Johnson said the entire retail sector is going through “this massive disruption.” This challenging retail environment is one of the reasons why companies like Starbucks have been investing heavily in tech such as its Mobile Order & Pay.

“[It’s] clear that the winners coming out of this are going to be those companies who find elegant ways to bring an in-store experience together with a digital experience,” Johnson said. “And I highlighted the number of examples of companies and the work they’re doing, you know, including the most recent discussion around Amazon’s announcement to combine with Whole Foods.”

He added that Starbucks has a lot of experience in different partnerships with digital tech companies. They’ve also had conversations with a number of pure-play tech companies.

Starbucks’ founder Howard Schultz noted that this is just the beginning of these sorts of relationships.

“[What] we’ve seen over the last few months with Walmart (WMT) and Jet.com and PetSmart and Chewy and most recently Amazon (AMZN)  and Whole Foods (WFM), I think this is just, we’re in the nascent stage of these kinds of commercial relationships that are going to elevate the experience of a brick-and-mortar retail company,” Schultz said. “And having said that, Starbucks is probably best positioned, given our national footprint, the demography of our customers, and where we’re located to have those kinds of conversations.”

While it has had success in getting customers to return to its namesake stores, it’s also learning that it isn’t impervious online retail’s impact on the American shopping mall. The coffee giant announced the closure of all of its mall-based Teavana stores.

“[Many] of our Teavana mall-based stores have been persistently underperforming,” Johnson said on a call with analysts on Thursday evening. “We conducted a strategic review of the Teavana mall-based store business and concluded that despite our efforts to reverse the trend through creative merchandising and new store designs, the underperformance was likely to continue. As a result, we will be closing all 379 of our Teavana mall stores over the coming year.”

In 2017, there’s been an acceleration of the retail store closures. A number of mall victims include The Limited, Wet Seal, Hhgregg, Payless, Rue21, True Religion, and Gymboree, according to a running list on RetailDIVE. Meanwhile, department stores like Macy’s (M) have announced store closures.

Most of the Teavana stores will close by Spring 2018. The 3,300 employees impacted will be encouraged to apply for positions at Starbucks stores. Starbucks operates 27,000 stores in 75 countries. The coffee chain plans to create 240,000 new jobs world-wide, with 68,000 of those in the U.S. over the next five years.

While this is probably not the desired outcome, it is probably not a surprise for management. For the last few years, Schultz has warned of a “seismic shift” in retail where he predicted a wave of store closures.


Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.

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