Starbucks (SBUX): Open Letter To Howard Schultz

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Mr. Schultz:

24/7 Wall St. has been going to Starbucks (SBUX) stores and doing evaluations for some time. Obviously, the current model at US stores is not working very well. The stock was over $40 in November 2006 and trades around $22 now.

One of the most notable things about Starbucks is that it is, in many cases, no longer a friendly place. In most stores some portion of the employees are not busy all of the time. The stores need someone at the door to greet people and give them a hand. It works well at Apple (AAPL) stores, Wal-Mart (WMT), and in a number of casinos. Starbucks used to be a simple experience. But, that has changed. With new coffees, WiFi, Apple iTunes, and a lot of other products, greeting and guiding people would almost certainly improve return traffic and drive up sales-per-visit.

Keep the stores clean. A number of Starbucks are not clean. This may not be true to the point that there is a health code violation problem, but when people pay a premium dollar, they would like to have a pristine environment. If it can be done at Costco (COST), it can be done at Starbucks.

Offer a discount. Most people who come to Starbucks probably order the same drink. Build the habit. If someone drinks hot chocolate, give them a card for a small discount for the next ten cups. They’ll be back more often and will feel someone is paying attention to them.

Douglas A. McIntyre