Starbucks (NASDAQ: SBUX): Why Spend $1bn to Close Stores?
https://themoneymaze.co.za/episodes/starbucks-1-billion-brew-closing-stores-to-save-coffee/
Auto-generated transcript, may contain errors.

0:00 Welcome to who the Mazda if your Sunday edition of the money mice, where we take a single stock making waves during the past week and dive a little deeper into the mess that is corporate finance. I'm your host, Jay, and today we're going overseas for a story that had me spitting out my reco coffee Starbucks. Yes, the global coffee chain where you pay 99 for foam in paper cup and they still spell your name wrong has just announced they closing hundreds of stores and laying off staff. And here's the kicker, they spending 1 billion U.S. dollars to do it.
0:34 A billion it's official. I'm calling it the Starbucks 1 billion brew. Now if you're saying how does a company that's struggling with sales decide the solution is to drop a billion on shutting things down, it's kind of like telling your ex-wife you've broken and pulling up in the driveway was a new Hilux, right? Let's break this down for you. Starbucks has around 38,000 stores worldwide.
0:59 They're not shutting all of them. So don't panic if you're planning a trip overseas, I'm sure you'll still find one where they can spell your name wrong. But they pulling the plug on hundreds of underperforming stores, mostly in the US, Canada and a few in Europe. On top of that they trimming about 900 jobs. And no, it's not necessarily your barrister's pouring your flat whites. It's more than non retail corporate suit type. So the ocean finance who invented pumpkin spice is sweating.
1:28 But your latte artist might be safe for now. The idea is simple. Some stores are bleeding money in dodgy locations or stocking bad leases rather than dragging them around like a ball and chain Starbucks is coughing up the cash to cut them loose. So why spend the billion to save money? This is where it gets a bit juicy, because on the face of it, it makes no sense.
1:52 But here's the business logic. Pruning Deadwood. Imagine you've got 10 chops on the bridge, 6 or selling lacquer and the other four are blacker than load shedding stage eight night. You can keep turning those burnt ones hoping for a miracle but all you will be doing is ruining the fire for the good meat. Better bending. Cry about the waste and focus on the six winners that Starbucks is thinking. Take the pain now and stop the bleeding. Resetting the base by calling this her reset. You can't build efficiently on a rotten foundation. Spending money on flashy new systems for bad stores is like putting solar panels on a shack with no roof. It looks cool in photos, but the whole thing still leaks. Going trains, Wall Street showmanship. Investors like bold moves.
2:40 The CEO comes out and says, we serious with cutting deep. Taking the knock. Now. Wall Street usually cheers. They want to see decisive action, not endless PowerPoint promises. And Starbucks's new boss, Brian Nicol, knows this playbook really well. Then there ask, Here's the problem. If Starbucks does all this pruning, but the good stores don't actually start making more money than they've just spent a billion dollars, Shrink smaller companies, same struggles. It's like buying a web before the bribe, but then realising you've actually got no charcoal lacquer plan. Terrible execution.
3:19 And let's not forget coffee isn't immune to consumer pressure. People are skinned, inflation bites petrol each your wallet and suddenly recover your home tastes like fine dining. So Starbucks could slim down only to find their customers of slim down too. Now let's look at the investor spin on the markets. These kinds of moves usually rewarded in the short term. Investors go, yeah, they're taking action, share prices stabilise, maybe even pops. But the real test is 12 to 18 months later. Did the closures free up enough cash? Did they reinvest it smartly?
3:53 And our customers still lining up for their burnt beans or the Dunkin' Donuts, McDonald's and your local petrol stations steal them with cheaper caffeine. Let's look at some South African parallels because we've seen this here at home. Pick and pay, those are stalls that drag down profits. Telcom chops staff like it's a national sport. Even mining houses shut shafts when the all bodies just too expensive to bother us. It's never pretty.
4:19 People lose jobs, customers moan, politicians grandstand. But sometimes to save the company you have to cut deep. The key for investors is looking past the headlines. Don't just see 1 billion loss, ask what costs won't exist anymore because of that. So let's look at your stockpile starter pack. Will the JSE Jedi Starbucks edition 1 billion brew Is Starbucks spending fortune now to hopefully save fortunes later?
4:48 You can't Polish Rattenbury bad assets. They bad no matter how much sauce you put on. Efficiency and growth only work if your base is solid. First prune, then plant. And investors love bold action. But without execution, bold action is just an expensive theatre. So next time you're steering the mug and bean bottomless coffee, wondering if it's actually bottomless or just dishwashing water, remember Starbucks is paying a billion dollars for the privilege of cleaning house.
5:19 And while my jokes may be more bitter than Starbucks's espresso, remember this is not financial advice. Please do your own research and speak to a licensed advisor.