Starbucks (SBUX): Schultz Can’t Win After Two-Minute Warning

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Football stars and CEOs pride themselves on winning when the chips are down, when things look to be at their worst. Elias Sports Bureau and legions of demented math Ph.Ds keep statistics on how many games are won after the two minute warning in pressure-cookers that lesser men could not handle.

Howard Schultz, founder of Starbucks (SBUX) made two tremendous mistakes and then could not correct them in time to get his company back on track. Several quarters ago, he let the CEO who he later fired say that Starbucks was on its way to having 40,000 stores, more than double its locations then. That set the bar so high that Wall St. was not prepared to see it lowered.

In February of 2007, Schultz sent a memo to his management saying that Starbucks had lost its early panache. He should have known then that the fact he would have to pen such a document was a sign that the consumer market was already moving away from his company.

Schultz stepped back into the CEO job, far too late, a horrible misjudgment on his part. He had no choice other than to play catch-up. The Starbucks growth story was well along its way to falling apart. Most of what Schultz did was cosmetic. He closed his stores for three hours one day to "re-train" his workers. He said the stores would get new brewing machines, and he launched a new line of coffee. It was all "bull". Investors hoped it would help. Not a chance.

Yesterday, Starbucks announced that its quarter would be bad and lowered its guidance for the year. The stock dropped to about $15 after hours. It traded at $40 less than two years ago.

It is not that long ago that Sam Walton visited 300 Wal-Marts (WMT) a year. J Willard Marriott used to read all of the complaint letters that came to his hotels. Both men could see any trouble a long way off. Nothing had to be done last minute. They could sense signs of trouble early because they looked for them.

Schultz saw Starbucks best days coming to a close when he sent out his note fifteen months ago. But, he stayed in his office and did nothing. By the time he came back, it was too late. He had such a brief time to make things better, and he could not pull it off.

Douglas A McIntyre