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Chapter 19: Reverence

Building a great, enduring company requires thoughtfulness and, at times, the courage to make very difficult decisions. For Starbucks, July 2008 was a moment when I had to make choices that I never, in my 26 years at the company, had imagined I would be faced with.

Six hundred.

Again and again I looked over the list of stores slated to shut: In Wichita, Kansas, a drive-thru that had been open barely one month. In Federal Way, Washington, a store that had served customers for 18 years. We would close 57 stores in Texas. Thirty-nine in New York. Twenty-seven in Minnesota. Arkansas would lose eight, Mississippi and Nebraska seven each, and North Dakota four. Twohundred and thirty- four drive-thrus. Seventy-two stores in malls. Fourteen percent of the stores to be shuttered were in California and 10 percent in Florida—not coincidentally, both regions were hubs of the subprime housing bubble and bust. Almost every major city would lose at least one Starbucks. Seven stores were located in our own backyard.

The choice about which stores to shutter was financially based. If we calculated that it would never provide acceptable returns even once we improved operations and the economy got back on track—which we knew it would, one day— then we most likely chose to close it.

At exactly 1:05 p.m. PST on Tuesday, July 1, 2008, five minutes after the stock markets closed on the East Coast, our press release hit the wires. By 1:15 p.m., the phones in our media affairs and investor relations offices were ringing, but Starbucks was in the mandated quiet period of the fiscal quarter for another month.

Our unavoidable silence provided a lot of room for interpretation, and the risks were huge. How could we maintain the integrity of our brand and the culture of humanity I espoused when we were disrupt- ing so many people's lives? We were committed to transferring as many displaced partners as possible into new roles—as many as 70 percent of those field and store partners could likely remain with the company. Second, we would give at least 30 days' notice to our people whose positions would be lost once a store closed, an unheard-of runway for mass layoffs, especially in retail.
At 1:17 p.m., my memo to Starbucks' partners was e-mailed companywide. I had striven for honesty, trusting our people to honor the realities of the situation Starbucks was in.

... we recognize that we must make decisions that will strengthen the US store portfolio and enable us to enter fiscal 2009 focused on enhancing operating efficiency, improved customer satisfaction and ensuring long-term shareholder value for our partners and customers….By far, this is the most angst-ridden decision we have made in my more than 25 years with Starbucks, but we realize that part of transforming a company is our ability to look forward, while pursuing innovation and reflecting, in many cases with 20/20 hindsight, on the decisions we made in the past, both good and bad.

By 1:45 p.m., Starbucksgossip.com was buzzing with rumors and anonymous opinions.

Outside the company, investor sentiment was unfolding and the public dialogue was taking shape. Tomorrow's coverage would be widespread as negative momentum fueled itself. Starbucks' closures could be cast as progress toward the company's commitment to transformation, but it was likely that some would frame them as a nail in our coffin.

Six days after the announcement, on July 7, 2008, our stock fell to a 52-week low of $14.95 a share. Wall Street wanted to see much more from Starbucks than just store closings.

"The first step is admitting you have a problem," wrote Morgan Stanley's John Glass. "The rationalization is welcomed, but does not negate near-term fundamental challenges. While we believe the brand is and will remain relevant to the U.S. consumer, there is no quick fix to turn around this company."

The coverage by almost every major newspaper, business website, and national broadcast news outlet confirmed our predictions about the media's focus and tone.

"Starbucks Goes from Venti to Grande," wrote Time.com in one of the more neutral headlines.

"Is the Global Domination of Starbucks Finally on the Wane?" asked an opinion piece that first appeared in the United Kingdom and was reprinted in the Seattle Post-Intelligencer.

At Forbes.com: “Starbucks' Dark Side.”

In Fortune: “Starbucks Has a Bitter Plan.”

A Motley Fool syndicated newspaper column claimed that a "tag- team of doughnut shops, fast-food joints, and quick-service diners" was crowding us out of the market, while the San Francisco Chronicle argued that our 600 store closures was proof that the US economy was in a recession. "Americans have decided to give up their $4 lattes," it read. "In 2008, a better definition of 'recession' may not exist."

Then this from the Christian Science Monitor: “Why Starbucks Lost Its Mojo.” The piece hypothesized that Starbucks got into trouble because we created a sense of "cool" for customers by "giving middle- class Americans exactly what they thought they wanted," a way to generate envy or status. Narrow viewpoints like the Monitor's aggravated me because they overlooked or perhaps begrudged Starbucks' mission and very real social contribution: human connection. Yes, this raises cynics' eyebrows, and yes, for some customers Starbucks is an aspirational brand or even a token of pride, but the latter is an unintended effect of what we originally set out to do.

Starbucks never set out to be cool. We set out to be relevant!

And few things were more necessary, were more relevant, than human connection, especially as the world was going through such upheaval and uncertainty. Starbucks never encouraged our baristas to be cool, but rather to be friendly and knowledgeable about our coffee and to engage with, laugh with, and reach out to their customers. The company does not make investments in health coverage and ethically source our coffee because these things are "cool." They are the right ways to conduct business.

The company's hard times could not be reduced to one cause or the death of some pop-culture trend. As I was learning every day, the story of our trials and tribulations was just not that simple.

On July 9, 2008, The Wall Street Journal picked up on a national phe- nomenon that we were dealing with back in Seattle: “Not knowing whether their local Starbucks will stay open is making customers and employees jumpy,” began the article.

In Starbucks stores around the country, not only were our baristas worried about their own store's fate, but our regular customers also feared their daily routine was about to be disrupted, and they came at baristas with a barrage of questions our people could not answer: "Will you close?" "When?" "What will you do?" "Where will I go?" A blog speculating which stores might get the ax sprang up, and as anxiety grew, Starbucks was widely criticized for not publicizing the complete list of closures.

Clearly we'd underestimated the anxiety that would result from not identifying which stores were scheduled to close, and once we recognized the degree of public angst, we very quickly changed course and released the full store list. Then, in an ironic twist, something unusual occurred. After refer- ring to Starbucks as a pricey extravagance, public discussion shifted as our customers and communities around the country pleaded "Save Our Starbucks." Their calls came in many forms. E-mails. Letters. Even petitions piled. On one independent website Saveourstarbucks.com—the posts rang with emotion. "Starbucks is more that just a coffeehouse," wrote a woman vying to save a store in Chino Hills, California. You go to Starbucks to meet friends; bring the kids for some cold drinks on a hot, sunny day; study; work on the computer; read, or just enjoy some quiet time in a comfortable armchair. This Starbucks has really become a part of our little community and we want to do what we can to help.

From a gentleman in Niles, Ohio: Please don't close our North Common Starbucks. My wife and I go there every day for our drinks. We know the staff and they know us. They have become our friends.

From an Indiana resident: PLEASE PLEASE PLEASE DO NOT close the Starbucks here in Portage, Indiana, on Rt. 6!!!! This is the BEST Starbucks we have EVER been to. Not only is it clean and the staff, ALL the staff, is always friendly but they seem to take pride in the store. . . . We ALWAYS go to this location. . . . We love everyone who works there. They really go the extra mile to make everyone happy. . . . PLEASE reconsider!!!!!!!

A few lines from a woman in Minnesota summed up so much of what we were hearing: "I can't believe that 'my' Starbucks is closing. You never know how important a place is until you are about to lose it."

My personal mail was filled with more of the same.

Most notably, the spontaneous flow spoke to our role in communities and the high quality of our store managers and baristas who provided the Starbucks Experience every day. From where I sat, I saw our customers' sentiments as proof that our store partners were succeeding and that I was not the sole or even the most important ambassador of the brand.

Back in Seattle, our people held conference calls with mayors, at least one governor, and city officials from around the country and also talked one-on-one with partners at "safe" stores who were standing up for fellow partners at closing stores. It was challenging for everyone to keep emotion out of the work that needed to be done, and for every single store we received a letter about—every single one— Mike's team conducted another financial review. But rarely, if ever, did the numbers justify reversing a decision.

It wasn't easy for them to stick to their guns, but Mike and his team kept the bigger goal in mind: Rightsizing Starbucks' retail portfolio as quickly as possible would, in the long term, secure the health of the company's future and of the 6,500 US stores that would remain open.

For months Mike and his six-person team of real estate experts, with backup from lawyers and outside consultants, camped out in a conference room, perpetually on the phone with any one of hundreds of landlords, unwinding our legal obligations and leases. It was difficult, detailed work.

For more than 20 years, Starbucks had been a desirable tenant, and a traffic- generating magnet for other tenants. Because of the financial strength of our company, developers often felt more secure signing a lease with Starbucks than with other retailers. Now our landlords, many of whom Starbucks' partners had established relationships with, were seeing another side of the company, and their reactions ranged from calm cooperation to intractable rage. Each developer or management company faced its own economic challenges. Huge public real estate developers, real estate investment trusts, had to answer to their own shareholders. For the independent landowner, a single vacancy at a strip mall might mean not being able to pay the bills or delaying retirement. We tried our best to strike fair deals and spent millions of dollars to make the best of a bad situation for all. Trying to put ourselves in the shoes of the landlord and act accordingly expedited the process.

When a member of Mike's team got off a particularly harsh negotiation call, Mike reminded him that the typical retail tenant who breaks a lease rarely goes as far as Starbucks was. "Most just walk in, throw the keys on the desk, and walk out."

Yet there was only so much our company could do to ease the inevitable sting, and some outraged individuals took their cases to local newspapers, claiming that Starbucks was unfair and not living up to its own standards. Some went as far as suing the company. My per- sonal e-mail account received its fair share of stormy sentiment. The backlash hurt, but our partners and landlords were hurting more.

Again, I saw a silver lining. The push-back from our customers, our people— even the reaction from landlords—affirmed that Starbucks was a positive force, a mainstay, in many communities. Never before had so many people inside and outside the company stood up and so passionately, so spontaneously, championed our existence.

"Would people go this berserk if the local Dunkin' Donuts closed?" wrote Daniel Henninger, deputy editor of The Wall Street Journal's editorial page in an op- ed piece. "What is going on here? It can't be about the coffee." Henninger's op-ed really captured the nuance and delicate balance at the heart of every Starbucks store:

A friend said that the Starbucks stores' bitterenders reminded her of the protests against the closing of the neighborhood Catholic churches. True. The stores are like secular chapels. No sign on the wall says you must be quiet, polite or contemplative, but people are. Ritual abounds. So too with the refusal to walk two blocks to a nearby Starbucks. Back in the glory days, when cities had a church every 10 blocks, no one would go to a church blocks away with the same service. They wanted their church. But they'd drop into a Catholic or a Presbyterian Church anywhere in America, knowing the feeling would always be the same. . . . I don't go to Starbucks that much. I don't go to the Baptist church either. But I'm glad that we've got one just about everywhere.

I took some solace in Henninger's analogy, pleased that there were some outside the company who recognized the unique value Star- bucks brought to communities. And I was reminded of our value when I read every letter and when I visited dozens of stores during the coming months on a listening tour, holding town hall meetings with partners and customers.

One day, at a store in Lakewood Towne Center near Tacoma, Washington, an older woman wearing a purple turtleneck raised her hand. "I have a couple of comments," she said. "First and foremost, I have a 161/2-year-old granddaughter in Madison, Mississippi, and when she knew I was going to be seeing you tonight she said, 'Grandma, get down on your knees and beg, don't let him close the Madison store!'" Then the woman stood up and, to a background of applause and supportive laughter from other customers, she got down on one knee in front of me. What could I say? I smiled and vowed to look into the Mississippi store. And we did. But tragically, like so many others, it too could not sustain itself.

My heart was heavy, but my belief that Starbucks was about so much more than coffee had never been stronger.
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