This was one of the reasons why the company suffered during the 2008 economic downturn, as customers sought out cheaper alternatives for their daily coffee. Starbucks was forced to close 600 locations that were not profitable. When compared to the same time in 2007, its earnings had dropped by 28% by March 30, 2008. It closed another 300 outlets and lay off 6,700 workers in 2009.
Howard D. Schultz replaced Jim Donald as CEO of Starbucks on January 8, 2008, following an eight-year absence. Since 1982, when the company had only four locations, Schultz had fostered it. He was CEO from 1987 until 2000 and oversaw the company’s initial public offering in 1992.
How did Starbucks do during the 2008 financial crisis?
Ask a real estate agent the next time you run into one if the economy is capable of transforming an industry. Most of them can enthrall you with true-life campfire tales about how economic downturns and interest rate changes have directly and emotionally damaged their businesses. Don’t have any experience in real estate? What about the government’s policies? Is this going to have an impact on your business? Yes, absolutely.
Are you looking for something even easier to grasp? Consider a cup of coffee in today’s world. Consider the four dollars that people donate to Starbucks every day. Ask Howard Schultz, former CEO of Starbucks, how an economy that justifies spending $4 for a regular cup of coffee has impacted his life and the way he does business. While we normally associate Starbucks with high sales and profits, they are a shining example of surviving and prospering in difficult times.
Starbucks’ quarterly earnings plummeted towards the end of the second quarter of 2008. For the first time in the company’s history, global operating income had dropped by 26%, and in-store sales were negative. Meanwhile, as the global crisis deepened, people tightened their belts and cut back on their spending. Starbucks made a profit for the first time in July 2008, reporting a net loss of $6.7 million for the third quarter. Profits dropped 97% in the fourth quarter, and earnings for the year were down 53%. Starbucks’ sales figures were negative 8% as the financial crisis spread across Europe and Asia, thus rendering Starbucks’ present business model ineffective.
If you haven’t read Howard Shultz’s book Onward: How Starbucks Fought for Its Life without Losing Its Soul, here’s the gist: Schultz returned to Starbucks as CEO after an eight-year absence, just as the company’s financial walls were collapsing. What would you do if you found yourself in such situation? Assume you’re in charge of the ship during the world’s biggest financial crisis in decades. Imagine being Schultz, opening your newspaper in the morning knowing that your customers were reading depressing headlines like this one from NPR on January 29, 2009: More Bad News Brewing At Starbucks.
However, we finally know what transpired in this scenario after all these years. Starbucks’ consolidated net revenues for the third quarter of 2018 were $6.3 billion, up 11% year over year. So, if you want to learn from one of the best leaders in the world, don’t just listen to Howard Schultz; truly listen to what he has to say. Hear the message in this statement from March 2011, three years after bringing the brand back from the verge of extinction:
“I returned to Starbucks as CEO in January 2008 since we were dealing with our own problems as well as the devastating financial crisis.” We’ve done our best work in the last two years. Because of the recession, we’ve become a lot stronger brand.”
When Schultz returned in the midst of the crisis, he halted the company’s rapid growth. He saved over $600 million in costs, and on February 26, 2008, he arranged the closure of over 7,000 Starbucks outlets across the United States for a three-hour retraining session for employees. “This is not about training,” Schultz told his staff, “but about the love, compassion, and devotion that we all need to have for the client.”
Are you able to hear the message? The recession prompted Schultz to refocus on his primary business. He first asked himself what business Starbucks was in, and then he considered what business they needed to be in.
The CEO was able to revive affection for his consumers while also skillfully controlling the ego that will rule any firm that values its product more than the people who would enjoy it. And it’s for this reason that Starbucks is a textbook example of how to come out on topeven strongerdespite, rather than in spite of, difficult economic circumstances.
One thing I’ve learned from my work assisting with the turnaround of hundreds of businesses of all sizes is that economic downturns result in breakthroughs. And what about winter? Winter is approaching.
Crisis diverts our attention away from the things we could or should do and forces us to make significant changes. For those who use crisis to create rather than let it destroy them, it breeds innovation and revolution. Those who fail to adjust to a changing economic environment end up in the company graveyard, where 96 percent of all enterprises end up after ten years of growth.
Did you have a business in 2008? Congratulations if you are still alive today. What impact has the global financial crisis had on the way you do business today? What did you learn, and how did it mold you into the person you are now? Most importantly, do you believe another economic upheaval is likely to occur within the next few years? In 2028, how do you intend to do business? Perhaps now is the time to consider how you might improve your efficiency and effectiveness in order to stay ahead of the ebbing and flowing economic tide.
How did Starbucks resurrect itself?
Starbucks shuttered all of its stores for a day to refocus on its service, then expanded its coffee portfolio. Starbucks was able to re-engage the majority of its regular customers. It was able to transform the morning coffee ritual into an all-day living ritual, allowing them to focus on being a consumer experience brand and a gathering place for friends and coworkers to spend time together.
When was Starbucks on the verge of going out of business?
Diedrich Coffee, a competitor, stated in September 2006 that it would sell most of its company-owned retail stores to Starbucks, including most Coffee People sites in Oregon, intensifying regional coffee warfare. Diedrich Coffee and Coffee People stores were converted to Starbucks. The sale did not include the Coffee People outlets at Portland International Airport.
Starbucks launched My Starbucks Idea, a community website in early 2008 to collect user proposals and comments. Suggestions might be commented on and voted on by other users. “My Starbucks seems to be all love and light at the moment,” journalist Jack Schofield observed, “which I don’t think is conceivable without a lot of censorship.”
Starbucks purchased Coffee Equipment Company, the maker of the Clover Brewing System, in March 2008. Several Starbucks stores in Seattle, California, New York, and Boston began testing the “fresh-pressed” coffee technology.
Starbucks said in July 2008, in the midst of the Great Recession, that it will close 600 underperforming company-owned stores and scale back its expansion plans in the United States. Starbucks also terminated approximately 1,000 non-retail jobs on July 29, 2008, in an effort to re-energize the brand and increase profits. 550 of the additional job cuts were layoffs, with the rest being vacant positions.
Starbucks also stated in July 2008 that it would close 61 of its 84 shops in Australia the following month. “Starbucks failed to properly comprehend Australia’s caf culture,” said Nick Wailes, a strategic management expert at the University of Sydney.
Starbucks announced the closure of 300 more underperforming outlets and the termination of 7,000 jobs in January 2009. Howard Schultz, the company’s CEO, also stated that his remuneration had been reduced by the board of directors. Between February 2008 and January 2009, Starbucks laid off an estimated 18,400 people in the United States and closed 977 shops around the world.
What caused Starbucks to close its doors in 2008?
Starbucks is closing all of its locations in the United States to train employees, something the coffee giant has only done once before.
Starbucks said on Tuesday that all 8,000 of its shops in the United States would close on May 29 in the afternoon. During this time, Starbucks says it will “perform racial-bias education focused on preventing prejudice in our stores,” according to a statement.
A video of two black men getting arrested at a Starbucks in Philadelphia went viral, prompting the training. When the males refused to leave the Starbucks after asking to use the restroom without purchasing any drinks, employees phoned the cops.
Over the weekend, Starbucks apologized to the guys and initiated a review of its training and processes, with plans to amend policies that could lead to discrimination against specific customers.
How did Apple make it through the Great Recession?
Apple’s success was largely due to iPod innovation. However, the company overcame the hurdles and became successful. 1. Apple would not have gotten so profitable if it weren’t for music. After Steve Jobs returned to Apple, the iPod was the company’s first major product addition.
Who profited the most from the financial crisis of 2008?
Warren Buffett declared in an op-ed piece in the New York Times in October 2008 that he was buying American stocks during the equity downturn brought on by the credit crisis. “Be scared when others are greedy, and greedy when others are fearful,” he says, explaining why he buys when there is blood on the streets.
During the credit crisis, Mr. Buffett was particularly adept. His purchases included $5 billion in perpetual preferred shares in Goldman Sachs (NYSE:GS), which earned him a 10% interest rate and contained warrants to buy more Goldman shares. Goldman also had the option of repurchasing the securities at a 10% premium, which it recently revealed. He did the same with General Electric (NYSE:GE), purchasing $3 billion in perpetual preferred stock with a 10% interest rate and a three-year redemption option at a 10% premium. He also bought billions of dollars in convertible preferred stock in Swiss Re and Dow Chemical (NYSE:DOW), which all needed financing to get through the credit crisis. As a result, he has amassed billions of dollars while guiding these and other American businesses through a challenging moment. (Learn how he moved from selling soft drinks to acquiring businesses and amassing billions of dollars.) Warren Buffett: The Road to Riches is a good place to start.)
During the Great Depression, who made money?
Chrysler responded to the financial crisis by slashing costs, increasing economy, and improving passenger comfort in its vehicles. While sales of higher-priced vehicles fell, those of Chrysler’s lower-cost Plymouth brand soared. According to Automotive News, Chrysler’s market share increased from 9% in 1929 to 24% in 1933, surpassing Ford as America’s second largest automobile manufacturer.
During the Great Depression, the following Americans benefited from clever investments, lucky timing, and entrepreneurial vision.
Howard Schultz left Starbucks when?
At the age of 29, Schultz was employed as the director of retail operations and marketing at Starbucks. On a buying trip to Milan, Italy in 1983, Schultz was introduced to coffee. When he returned, he worked to persuade company owners Jerry Baldwin and Gordon Bowker to add traditional espresso beverages to the whole bean coffee, leaf teas, and spices that they already offered. Following a successful pilot of the cafe concept, Baldwin and Bowker were intrigued, but due to the high cost of espresso machines, the relative scarcity of expertise for machine maintenance and repair in America, and Americans’ lack of familiarity with the drink, they decided not to pursue Schultz’s idea further, and he left Starbucks to start his own company. In 1985, Schultz quit Starbucks to launch his own store. He needed $400,000 to get his company off the ground. Starbucks spent $150,000 in the new firm, with Baldwin gaining a seat on the board and Bowker providing unofficial help, after Schultz toured over 500 espresso cafes in Milan and assumed most of the risk associated with introducing espresso to the American market. Ron Margolis, a local doctor, contributed another $100,000. 217 of the 242 investors Schultz approached turned him down. By 1986, he’d accumulated enough money to launch his first store, Il Giornale, which was named after the Milanese newspaper of the same name. The shop served ice cream alongside coffee, had limited seating, and had opera music playing in the background. Two years later, the original Starbucks management team decided to focus on Peet’s Coffee & Tea and sold its Starbucks retail unit for US$3.8 million to Schultz and Il Giornale.
Schultz renamed Il Giornale Starbucks and expanded the company’s footprint across the United States. Customers and competitors reacted differently to this type of marketing campaign. Starbucks’ relationships with independent coffeehouse operations were tense, although several owners applauded the company with educating customers about the beverage. Schultz was an outspoken opponent of franchising, insisting that Starbucks retain ownership of all domestic locations. Starbucks’ role as a social centre, according to Schultz, is largely credited with ushering in the second wave of coffee culture in the United States, notably in Seattle. Starbucks launched its first public offering (IPO) on June 26, 1992, and its common stock began trading under the ticker SBUX. The IPO brought in $271 million for the company, allowing them to double its store count. Schultz stepped down as CEO of Starbucks on June 1, 2000, and took on the role of chief global strategist to help the company expand internationally. Orin Smith, who served as Schultz’s top financial officer in the 1990s, succeeded him. After managing the launch of the first store in China in January 1999, Schultz spent the following year establishing a coffee consumer base in the region. Schultz urged the company to open one to two stores each day in mainland China during the late 2000s and early 2010s. Starbucks’ marketshare in the United States was reduced by several coffee wars with McDonald’s and Dunkin’, and the stock price decreased by 75% from 2006 to 2008. While revenue was increasing, it was primarily due to new shop openings, which resulted in unsustainable (or inorganic) growth.
What was Howard Schultz’s contribution to Starbucks?
In 2000, Schultz stated that he would stand down as CEO but would continue to serve as chairman. By 2007, the chain had grown to almost 15,000 outlets globally, but it was in trouble, so Schultz returned as CEO in January 2008. He oversaw the closure of 900 locations and undertook an ambitious expansion strategy that included the purchase of a bakery chain and a coffee-brewing system manufacturer, as well as the launch of an instant-coffee brand. He was also in charge of overseeing improvements to Starbucks’ menus. These actions were mainly successful, and Starbucks’ financial situation had improved by 2012. Schultz stepped aside as CEO again five years later, while he remained active in the firm, serving as executive chairman until 2018.