Starbucks Leaves Stores Unfixed as McDonald’s Perks Up

Starbucks Leaves Many Stores Unrenovated
Starbucks refurbishes its stores after five years and then again after 10. Photographer: Ramin Talaie/Bloomberg

Less is more at Starbucks Corp.

The Seattle-based coffee chain is betting it can increase sales by spending the same amount of money as usual, about $250 million a year, to renovate only about half the approximately 1,900 shops due for a facelift in 2011.

Emphasizing stores in precincts like Manhattan’s Soho district, and employing such eco-friendly touches as reclaimed furniture, will lift the whole brand, Arthur Rubinfeld, Starbucks’ global development chief, said in an interview.

Starbucks is trying to caffeinate sales growth, which topped 10 percent in the most recent quarter for the first time since March 2008, while paying investors dividends. The strategy risks alienating customers at the unimproved stores as McDonald’s Corp., now pushing its own coffee drinks, plans to pump $1.2 billion into restaurant renovations this year.

“I have concern over Starbucks setting expectations that don’t get fulfilled by a visit to a typical store,” Julius Dorsey, the president of the Cleveland-based management consultant Dorsey & Co., said in a telephone interview.

Starbucks, led by Chief Executive Officer Howard Schultz, announced its fourth quarter and full-year earnings today. Net income rose to $279 million, or 37 cents a share. That compared with the 32-cent average of estimates compiled by Bloomberg. The company also announced a dividend of 13 cents a share, the third in its history, and raised its 2011 profit forecast to as much as $1.47 a share, compared with a previous projection of as much as $1.41.

Shares Doubled

Starbucks rose 65 cents to $29.75 at 4 p.m. New York time on the Nasdaq Stock Market, the highest since May 2007. The shares have climbed 29 percent this year. While that about matches the return for McDonald’s, shares of the world’s largest hamburger chain have more than doubled in five years while Starbucks declined 2 percent.

Starbucks refurbishes its stores after five years and then again after 10. Since 2008, the number of stores turning 5 and 10 has doubled and as many as 1,900, or about a quarter of the company’s 8,800 stores, are due for upgrades in 2011. The company has closed about 900 stores since 2008. It declined to say how many 5- or 10-year-old shops were among the closures.

Many of the coffee shops feature the same earth tones and blond wood Starbucks has used since the 1990s.

Rehabbing all of them would cost as much as $475 million. Like other restaurant chains, Starbucks has cut capital spending since the recession. In the past 12 months Starbucks spent about $450 million and used about half for renovations, according to company filings. It will renovate the same number of stores, about 1,000, again in the next year, Chief Financial Officer Troy Alstead said in a July conference call.

Reclaimed Materials

Starbucks hired architect Kambiz Hemati from BCBG Max Azria Group Inc., the Vernon, California-based fashion retailer, to design the new stores. They feature reclaimed materials, low-flow faucets and energy-efficient air conditioning. As the company gradually remodels the rest of its coffee shops, it will borrow from the flagship stores, Hemati said.

Every time Starbucks opens a new location, the company makes sure the media hears about it -- part of a campaign to burnish the overall brand. After a new store opened in Seattle three weeks ago, it was mentioned 357 times in traditional media outlets, according the news tracking firm Vocus. USA Today wrote a story, which began: “The Starbucks of the future arrived today.”

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