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Originally published January 28, 2009 at 1:14 PM | Page modified January 29, 2009 at 9:01 AM

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Starbucks will cut 6,700 jobs, close 300 more stores

Starbucks will immediately lay off 350 at its headquarters, as part of 6,700 worldwide job cuts in stores and elsewhere over the next eight months.

Seattle Times business reporter

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Starbucks will cut 6,000 positions as it closes 300 stores worldwide over the next eight months and will eliminate about 700 non-store workers by mid-February as it cuts costs to stem its eroding profits.

The immediate layoffs include about 350 employees at its Seattle headquarters, about 11 percent of the 3,200 people who work there. The 300 store closures will include 200 U.S. shops.

The company also said that its profit dropped 69 percent to $64.3 million, or 9 cents a share, in the first quarter ended Dec. 28.

Altogether, the job cuts, store closures and other initiatives announced Wednesday are meant to save the company $500 million this year.

Starbucks began closing a previous group of 616 underperforming U.S. stores last year. At those stores, the company has relocated about 70 percent of the employees to other locations, said spokeswoman Deb Trevino.

At Schultz's request, the board will reduce his salary to less than $10,000 a year, the minimum necessary for him to continue receiving health-care and other benefits. Schultz's salary for the past few years has been $1.2 million; his total compensation last year was $9.7 million.

Four top Starbucks executives including Schultz did not receive bonuses last year.

Schultz sent the following memo to employees this afternoon:

Dear Partners,

As you well know, these are very challenging times for everyone at Starbucks. We are working hard to navigate both a deteriorating global economy and the restructuring of our business. And we do so with the ever-present priority to preserve the culture and guiding principles of our company.

Today we announced first-quarter results. Our revenues were down 6% from a year ago, driven primarily by a 9% decline in same-store sales. Retailers across the country have reported negative comparable store sales as high as 30%, in the midst of declining consumer confidence to levels not seen in 40 years. The forecast by experts suggests the economic situation will get worse before it gets better.

All of this has required us to aggressively re-architect our cost structure. Over the past few months, we have made some progress in containing costs and improving operations in our existing stores. For this I thank all of you for the sacrifices, discipline and effort you are making each and every day.

But we have more to do, and we must act with decisiveness in order to make Starbucks even more relevant in an increasingly worsening business environment.

The leadership team and I have gone line-by-line to reduce costs while considering every decision through the prism of our values and culture. Offering comprehensive benefits — including health care and equity in the form of stock options — are at the core of our company and have taken priority over certain other benefits. We will continue to offer health care coverage and Bean Stock to partners, and we are seeking shareholder approval to amend our equity incentive plans to allow eligible partners a one-time opportunity to exchange certain outstanding underwater stock options for a lesser amount of new options with lower exercise prices.

All told, we plan to invest more than $500 million in total partner benefits and stock compensation this year. While we fulfilled a $15 million company match to our U.S. 401(k) savings plan for 2008, we have determined it should be discretionary in 2009. And, in order to focus on the benefits that provide the most value to the greatest number of partners, we are revising our paid time-off policy for U.S. retail hourly partners, revising our Stock Investment Plan (S.I.P.) and expanding our U.S. commuter benefits program. Details can be found in the attached Q&A document.

We are also making difficult decisions that will impact some of our partners' lives. Moving forward we will be unable to maintain our workforce as it is currently organized. As part of today's announcement we indicated that there will be layoffs. Approximately 700 non-store partners will be separated from the company in the U.S. and internationally, with about half at the Starbucks Support Center in Seattle by mid-February.

We must also close approximately 300 additional underperforming stores in FY09, about 200 in the U.S. and the remainder in international markets. Of our 167,000 retail partner workforce, we estimate we will reduce approximately 6,000 store positions over the course of the next eight months. As before, we hope to be able to place affected store partners elsewhere in the store organization.

Partners who are displaced will be offered severance packages based on job level and/or years of service.

These decisions have been made to ensure the company is leaner and prepared to endure a worsening economic climate. I can assure you the management team is aware of the impact of these steps on the organization — both those who will depart and those who stay. For those of you who will be departing the organization, I thank you for your contributions to Starbucks and wish you and your families the best during this difficult time.

In the last few weeks we have seen countless companies announce layoffs and some bankruptcies. I point this out to try and put in context that the financial crisis is affecting almost every company around the world. The decisions we make are about preserving the future of Starbucks. And I can promise you that I and the leadership team will do all that we can to put us in a position to emerge strong on the other side of this crisis, and stay true to our values and culture.

Respectfully,

Howard

Melissa Allison: 206-464-3312 or mallison@seattletimes.com

Copyright © 2009 The Seattle Times Company

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