Howard Schultz on Crisis Response

The 2008 turnaround cut deeply into the store base. In July 2008, during the Great Recession, Starbucks announced it would close 600 underperforming company-owned stores and cut back United States expansion plans, and on July 29 it eliminated almost a thousand non-retail jobs, 550 of them layoffs. The same month it announced closure of 61 of its 84 Australian stores after misreading that country's café culture. In January 2009 the company announced 300 additional store closures and the elimination of seven thousand positions, with the board approving a reduction in Schultz's own salary. Altogether, from February 2008 to January 2009, Starbucks terminated an estimated 18,400 United States jobs and began closing 977 stores worldwide. The scale of the retrenchment signaled that the founder's return was a genuine restructuring rather than a symbolic restoration of the brand's romance, and it bought the balance sheet room to reinvest in stores and people.

On April 12, 2018, two Black men were arrested at a Philadelphia Starbucks after a manager claimed they were trespassing, an incident that began when they asked to use the restroom without making a purchase. Video of the arrests spread and protests followed. Chief executive Kevin Johnson apologized and the company declined to press charges, and on the April 26 earnings call Johnson reported the company had seen no sales drop, reiterating full-year guidance and beating consensus expectations with two percent same-store sales growth. He then announced that some eight thousand locations would close on May 29 for a seminar on racial bias intended to prevent a repeat of the Philadelphia episode. On June 19 the company said it would close 150 locations in 2019, three times its typical annual count, concentrated in urban areas already dense with stores. The episode forced a public audit of what the third place owes the public that uses it.

On January 7, 2008, after an eight-year hiatus, Schultz returned as chief executive at the height of the financial crisis, succeeding Jim Donald. He led a mass dismissal of executives, closed hundreds of stores, and temporarily shut every United States location to retrain employees in making espresso, betting that a visible reset of craft would matter more than a quarter of lost sales. He redoubled the firm's fair trade and ethical sourcing policies across its supply chain in Africa and other coffee-producing regions, and within two years roughly doubled annual fair trade coffee purchases to an estimated forty million pounds. He arranged the appointment of the company's first chief technology officer, acknowledging that a retailer built on store experience now needed digital infrastructure. The program was more restructuring than turnaround theater, with costs, portfolio, sourcing, and leadership all rebuilt simultaneously while the consumer economy collapsed around the business.

The Philadelphia response became a case study in crisis communication. The company's initial statement acknowledged the situation and promised a policy review, but it failed to mention concerns about racial bias, falling short on specificity and sincerity even though it was swift. The second statement, from chief executive Kevin Johnson, took a targeted tone describing the outcome as reprehensible and reaffirming the company's opposition to discrimination and racial profiling, and Johnson released a video taking personal ownership of the incident. MIT Sloan lecturer Roberta Pittore's framework held that in a social-media environment a response must be swift, specific, and sincere, and the revised statement indicated leadership had grasped the incident's gravity only after the first attempt fell flat. The gap between the two statements is the lesson: a general assurance of good intentions reads as insincerity when the incident at issue is specific, tangible, and visible to everyone watching.

Johnson then traveled to Pennsylvania to meet the two men who had been arrested and apologize face to face, a move Pittore judged appropriate to the climate around the incident. In May 2018 the company reached a financial settlement with the pair for an undisclosed amount, along with a promise to help them complete their bachelor's degrees through the company's tuition assistance program, a resolution that asked the men what recompense would actually look like rather than imposing one. The centerpiece remained the decision to close more than eight thousand stores for an afternoon of racial-bias education reaching 175,000 employees, which Pittore called the right call while cautioning that a single afternoon could not eradicate unconscious bias. Her measured endorsement captured the strategic logic that acting beats waiting, that doing more beats doing less, and that moving sooner beats moving later, a sequencing standard against which corporate crisis responses are still measured.

The 2007 crisis that brought Schultz back began as an internal argument about brand decay. Seven years after he stepped down as chief executive, Starbucks had, in his own account, become overly focused on its stock price and was losing sight of its mission, while changing customer expectations, emerging technologies, and a foreboding recession compounded the problem. A Consumer Reports taste test that year rated Starbucks coffee behind McDonald's, an outside validation of what insiders already suspected about quality drift. Acting as chairman, Schultz wrote a memo for the leadership team cataloguing the bad decisions, titled for the commoditization of the Starbucks experience; the document leaked to the internet and created massive internal havoc, airing the founder's diagnosis of the company's drift in public. The leak forced the question of whether the board would let the architect of the brand fix what his successors had built on top of it, and the answer arrived within a year.

Schultz reassumed the chief executive role in 2008 to fix the problems the memo had catalogued, reassessing the company's mission and developing a plan to return it to its core values that became known as the Transformation Agenda. Its most visible act came on February 26, 2008, when Starbucks closed 7,100 stores for a three-and-a-half-hour afternoon of barista retraining, a call that financial analysts disliked but that Schultz deemed mandatory to the journey of restoring the mission. The afternoon of training re-energized the associates, in the account of his memoir Onward, and communicated the company's commitment to the experience it sold. Closing the entire domestic fleet to practice making espresso converted a cost line into a public statement of standards, the founder betting that the market would eventually pay for craft the company had let slip in the pursuit of growth.

Later in 2008 came a harder decision: shuttering 600 stores and laying off twelve thousand employees, cuts that ran alongside the retraining and gave the Transformation Agenda its substance. Much of the memoir's narrative concerns rebuilding the management team, with Schultz working to find the right people for key positions while identifying new business opportunities and new technologies, including the Clover coffee brewer acquired with the Coffee Equipment Company. When the financial meltdown hit in September 2008, Schultz resisted pressure to cancel the company's biennial leadership conference and instead held it in New Orleans, a city still struggling to recover from Hurricane Katrina, gathering thousands of managers in a deliberately chosen symbol of recovery. The choice to spend money on people and place at the bottom of a recession expressed the operating thesis of the entire turnaround, that the company's renewal would come through its employees or not at all.