Starbucks is planning to close 600 stores, eliminating 12,000 retail and non-retail positions. Starbucks is taking the $348 million hit in broken lease agreements and asset write-offs. Starbucks has also announced that their only going to be opening 200 new stores this fiscal year. These closures are only a small part of the ‘multi-faceted plan to transform the company’.
Starbucks has seen some hard times recently and would of continued to have their bottom line cut at if they didn’t do anything drastic soon. The economy isn’t going to bounce back to the rapid growth Starbucks needs to makes their stores profitable. Even after all the income tax benefits Starbucks will lose a cash outflow of $100 million dollars, which will be evened out by the lack of costs produced by the closed stores.
Death of Over Saturation, Birth of Profit
Upper management is willing to understand the general public perception of Starbucks and react. Starbucks has been seen for years as the ever expanding corporation opening stores on every corner causing canalization of other stores which decreases profit margins. The growth of customers expected to decrease the chances of canalization is little to none in some areas. The reality is that store openings cost Starbucks large amounts of money in the short term, and right now Starbucks is not willing to gamble with the possibility of long term growth in areas of over-saturation to compensate for the upfront costs of openings new stores.
Closing stores shows growth for Starbucks due to projected increase of profit margins. This can be done by funneling customers from closing stores to existing stores, in some ways it’s the backwards canalization effect. Instead of stores taking away business from other stores, closures will simply boost the customer count in the surrounding stores. This increase in traffic will call for more labor which is readily available by the displaced employees of the closing stores. While Starbucks is cutting fixed costs such as leases, utilities and materials, the largest cost Starbucks is going to manage is labor. Instead of outright cutting labor, they are going to place it where the demand is greatest.
→ 1 CommentTags:Close·profit·Starbucks·Stores·Turnaround
What Should You Do When the Market is Down?
June 29th, 2008 · No Comments · Recession, Stock Market
You only have three options in the stock market; buy, hold or sell. What will you do in this current market?
Nancy Trejos, a writer from The Washington Post, explores what you should do When You’re Tied Up in a Down Market. After reading this article a few times I have concluded that neither she nor anyone else really knows what to do.
With only three different choices to make with my stock positions and even with Trejo’s persuasive words I still stand firm in my investment strategy of holding. Its tempting to becoming a ‘bargain hunter’, however it’s hard to bottom feed when you’re not sure where the bottom is.
Selling could be the most dangerous option by far. If you sell at a loss, you’re only gain will be in taxes (with capital losses) and even if you do reinvest that money it will be increasingly harder to gain a profit. Understandably when a company is going downhill, jumping ship is advised. However, in most circumstances riding out a rough patch could be better for your portfolio.
→ No CommentsTags:Bargain·Bottom·Hold·Hunter·Market·Stock
When Will This Market Ever Get Better?
June 27th, 2008 · No Comments · Recession, Stock Market
I have virtually climbed into a financial rabbit hole to weather out all and any fallout. I have and always will be a long term investor in the stock market, which means when times get rough I rather hide then sell.
Due my horrible timing of stock purchases in the past few months I have been cautiously researching and deciding not to buy instead of seeing opportunities to become a bargain hunter.
As I talked in my last post, it boils down to the same five stories over and over again. I am sure the pundits on TV have no exposure to the market, because they’re always excited to tell us that the market plummeted and the world is officially gloom and doom.
Light at the end of the tunnel
Every market situation is always cyclical and even in our current rough patch; there is a light at the end of the tunnel. When I read about how gas could fall to two dollars a gallon and the comeback company Starbucks is scaling back CD sales that makes me peek my head out for a second to see that some forward progress is happening.
I feel that every bubble build up over the last ten years will burst. (If they haven’t already) The trend will be lean minded companies, aiming at wide profit margins with the goal of trimming junk plagued with old technologies. Quality over quantity will be the focus with products and services, for use of less labor and less use of raw materials.
This perfect storm of financial fallouts will be over soon and everything will be equalized again. Sure, another bubble will start forming and everyone will be excited about how well the markets are doing, how the dollar is gaining ground and how domestic businesses are prosperous again. Until then I’ll wait and hide for either a bottom in our bottomless pit of a market or when times get better.
→ No CommentsTags:Cyclical·Fallout·Investor·Long·Market·Term
5 Financial Fallouts We’re Sick of Hearing About
June 16th, 2008 · 5 Comments · Recession, Stock Market
Oil
Crude oil prices have more then doubled in the past year, and we have all felt this increase at the pump. Financial pundits report the same story over and over again with our dependence on oil, prices reaching new high records and alternative energy. Five dollar, six dollar a gallon gas are the shock tactic headlines and it looks like things are going to get worse before they get better.
Housing market
The housing bubble has officially popped. Foreclosures have increased 65% last year. House values have plummeted and people have resorted to new tactics to sell houses such as, buy one house get one house free and switching houses with buyers. Some would say the underlining cause of this downfall was due to risky subprime mortgages where lenders offered larger mortgages with higher fees (most of which were adjustable rate and not fixed) to borrowers who had less then perfect credit.
Credit Crunch
When the root of the housing market fallout was pinned pointed on faulty and risky subprime mortgages (along with other factors) the availability to lines of credits tightened. With this tightening of credit came lack of growth for businesses which fueled the trend of slower consumer spending which in turn cut the demand for businesses. If a companies can not grow to meet demand, or consumers do not have the available money to purchase goods the entire flow of domestic commerce slows.
Stock Market
One point up and two points down, two points up and one down; the same series of events happening on a daily basis.. With each sector doing their own nosedive based on oil, the housing market, credit crunch, and a possible looming recession. The story Americans hear the most is how domestic business are suffering due to our current economic downturn which causes domestic stocks to plummet, in turn causes investors to shift their portfolios international which causes even further sell offs.
Recession
A recession has nothing with the ‘decline in a country’s real gross domestic product’, but rather with the mental anguish an individual feels with the other four economic downfalls listed here. An individual gauges if the economic ship is truly sinking by things that hit closer to home such as unemployment, neighborhood housing costs and rising cost of goods. Consumers care less about the true definition of a recession; instead they care about how it will personally affect Main Street not Wall Street.
→ 5 CommentsTags:Credit·Crunch·Housing·Market·Recession·Stock
Not Another Apple 3G iPhone Blog
June 10th, 2008 · No Comments · Apple
If you’re like me you have had either your RSS reader fill up, your online news site plagued, and/or every television channel you watch focused on the new Apple 3G iPhone (and WWDC).
They cover every angle, opinion, speculation and possible outcome thought of for the next year or so. After awhile you realize they are all saying the same thing and thanks to Mahalo Daily I have found a condensed way to reduce all of this noise (and the 107 minute keynote) to a short 60 seconds.
→ No CommentsTags:3G·Apple·iPhone
Why Being Cool Can Drive Sales for Starbucks and Apple
May 29th, 2008 · 3 Comments · Apple, Starbucks
If Starbucks were able to bring the ‘cool’ factor, would it grow sales?
The pressure on Starbuck’s stock is less on cash flow and growth, but on the perception of the brand.
Individuals invest in future performance, and how consumers see Starbucks on the frontlines directly affects performance. Apple, for example, has a very ‘cool’ brand. They are less in the business of selling computers and iPods, but rather in business of selling a fashion item. Even after you look past the quality of products and seamless integration between items, the truth is a Mac Book Pro will make you look cool.
Starbucks had this same conation in years past; the Starbuck logo used to mean luxury. Though, luxury doesn’t necessarily equate to being ‘cool’. Cool refers to the wow factor, the remarkable and the cutting edge. Starbucks needs to throw everything including the kitchen sink out the window. They need to step away from being associated with another quick service restaurants (some would call fast food) and branch out into their own category to reclaim the wow factor.
Consumers are driven by experiences.
When consumers walk into an Apple store they often are not in the mood to shop, rather they are in the store for the experience.
Consumers are known to surf the web on Apple’s Mac Books, fiddle with the newest iPod and text their friends on Apple’s functional iPhones. Employees are roaming asking questions, always there to jump at the opportunity to help consumers explore their products. More importantly, they allow people to explore products without being intrusive and that cool.
Employees know that the large percentage of people that go into an Apple store will never buy an Apple product in the same visit, and understand that the best education for a consumer is a hands on fun relaxed atmosphere.
How can Starbucks mirror Apple’s cool factor?
There is no quick fix for Starbucks to copy the cool factor Apple has.
Rather, Starbucks needs to create there own style and wow factor. This wow factor is not going to be about new drinks, new prices or even new markets of growth. The cutting edge has to been in operations, new technologies that make a barista job more efficient and fun. This operation change will easily translate to the experience the consumer has, and will distance themselves from other quick service restaurants.
Starbucks has already tried new technologies such as wi-fi in more stores, LCD screens, and a partnership with Apple iTunes store; all to have no effect on the majority of consumers. These attempts have not worked because they do not drastically change the operation of a store, but rather add to a distraction of why Starbuck exists. In order for Starbucks to be cool, it shouldn’t be a hassle (or stressful experience) to get a great cup of coffee.
→ 3 CommentsTags:Apple·Cool·Experience·Factor·Starbucks·Wow
Jamba Juice Company: Penny Stock or Potential Profit?
May 27th, 2008 · No Comments · Stock Market
Penny stocks are one of the most dangerous stocks in the market, tech stocks in 1999 dangerous.
The difference between a penny stock and a stock battered to all-time lows is the potential it has and the assets it sits on.
Jamba Inc. (NASDAQ: JMBA) commonly called Jamba Juice Company serves blended-to-order fruit smoothies, squeezed-to-order juices blended beverages and healthy snacks. They are king of smoothies in the premium beverages market.
This ‘high-margin beverage niche that is now overrun with cutthroat alternatives’ is compared with Starbucks (NASDAQ:SBUX) and both stocks are being plummeted. Jamba Inc.’s stock price is down 75% in the last year.
Jamba Inc. currently sits in the penny stock category due to the price point, even though assets weigh out the value of the company on the market. They are continually losing money and are extremely exposed to the current economic downturn.
Even though I would advise others to not touch this stock due to likely chance you’ll lose your shirt, I personally see long term potential in this company. This style of throwing money at the wind rides a fine line between investing and gambling. Where seeing a bottom where everyone else sees a dying stock is where you can truly make money.
Today Jamba Inc. had its most active day in more then a year.
→ No CommentsTags:Jamba·Juice·Long·Starbucks·Term
Is Whole Foods a Bargain?
May 14th, 2008 · 1 Comment · Recession, Stock Market
Whole Foods Market (NASDAQ:WFMI ) fell 13% today on news of lackluster earnings and it seems that the ‘dust hasn’t settled’ yet.
The problem I see is the reaction to the macroeconomics circumstances were in right now: Americans are worried about inflation therefore spending less money on premium food.
Investors and consumers alike still think were in hard economic times, even if were in a recession…they can’t see long term.
Whole Foods vs. Starbucks
Whole Food has said to have the ‘Starbucks syndrome’ where ‘same-store sales slowly erode as it tapped out its core market of upwardly mobile customers.’ I disagree. To compare Starbucks with Whole Foods is comparing apples to oranges.
Whole Food Market not only caters to a different audience, but their store growth is steady. With the acquisition of Wild Oats still hurting their bottom line, they seem to still make a profit. The majority of their customers still go to Whole Food Market even in poor economic times and they will continue to go whatever markets will do. Their customers are growing as the top-end food business is being taken back with the rise in food costs.
Starbucks revenue equation is a slowly growing customer base matched with newly opened stores, the problem Starbucks has had is the growth in customers has not get inline with the growth of stores. Think of a customer base of 100 people going to 10 stores when one more store opens and the customer base only grows by 5 people the average decreases from 10 customers per store to 9.5 per store. Analysts see the decrease in same store sales and discount growth of customer base altogether. Starbucks has already slowed US store growth in order to have the customer base ‘catch up’. This isn’t a growth in customer base issue, as much as a growth in stores.
Is Whole Foods a Bargain?
Long term, long term, long term.
Whole Foods Market is a perfect long term play, as we slowly creep out of current economic downturn it is important to find the perfect bottom for this stock.
They continue to market and provide premium food even with competitors trying to take their market share; though in years to come it will be easy to see there will be no contest in providing an excellent experience in stores which is be shown in their books. This stock will bounce back, but it has to go lower before it goes higher.
→ 1 CommentTags:Bargain·Food·Market·Recession·Starbucks·Whole
Carl Icahn and Motorola: Increased Stake Means Increased Pressure
May 8th, 2008 · No Comments · Motorola
Whenever Motorola is mentioned Carl Icahn involvement is soon to follow. Maybe it’s his increasing stake in the company, in which yesterday it was reported that he upped his holding of Motorola to 7.6% from 6.4%, or is it the belief that Carl Icahn being can still help turnaround Motorola?
Even though Icahn dropped a proxy battle with Motorola in mid-April in lieu of two board seats, shareholders are still hoping this corporate raider can turn into a shareholder activist. His increasing stake is a surefire indicator that he sees value in Motorola, and willing to continue to pressure Motorola to make changes this time within the boardroom.
The reasoning I see behind the increasing stake in Motorola is that when the company plans to split, shareholders will likely be able to own stock in both of the new companies’ tax free. Since Icahn is one of the largest shareholders in Motorola he can benefit the greatest from the split.
Carl Icahn has a long road ahead of him with this turn around and I still consider Motorola the worst investment I have ever made. However, since I’m fully invested and not willing to sell resulting in a loss I can only trust Icahn to take this failing cellular phone company and produce two profitable companies in the coming years.
→ No CommentsTags:Carl·Icahn·Motorola·Pressure·Raider
Surprise, Berkshire Hathaway Isn’t a Growth Stock
May 5th, 2008 · No Comments · Stock Market
During last weekend’s annual shareholder meeting Warren Buffett, CEO of Berkshire Hathaway Inc, made a comment many missed saying “Anyone that expects us to come close to replicating the past should sell their stock. It isn’t going to happen.”
Wait, a CEO telling his shareholders that the company he runs isn’t going to meet the expectations of years past? Even citing that ‘returns will decline‘?
Exactly.
Berkshire Hathaway Inc. (NYSE: BRK.A - BRK.B) has done phenomenally well with growth of 21.1 percent a year up until 2007. Such growth for a company with a market value over two hundred billion can not last forever as leaders are aging and talk of succession plans are coming to the forefront.
Berkshire Hathaway is one of many companies being thrown in the value/long-term stock pile, where holding it over several years is the most reasonable way to make an intelligent investment. Many of the investment plays inside of Berkshire are only going to be profitable in the long term such as junk bonds and stock market indexes. This will require a patient and steadfast investor willing to weather some bump roads ahead.
Warren Buffet isn’t going to sit idle either; he plans to continue to look for more businesses to acquire and keep accumulating cash to drive a company that is bigger and more wealthier then it was yesterday.