Starbucks is shuttering 8,000 stores for several hours on May 29 and it could cost the brand millions in lost revenue.
The training comes after protests erupted over the weekend because of the arrests of two black men at a Philadelphia Starbucks last week.
“There’s no doubt in my mind that the reason [the police] were called was because they were African-American,” Howard Schultz, chairman of Starbucks, said on CBS Wednesday. “And I’m embarrassed by that, I’m ashamed by that. That’s not who Starbucks is, that’s not who we have been and that’s not who we’re going to be.”
While mornings provide Starbucks with the majority of its sales, shuttering even for just a few hours in the afternoon could be costly for the brand.
In January, Schultz said that the average Starbucks store makes about $32,000 a week. Using that as a bench mark, 8,000 stores would make about $260 million in that same period, or about $36.6 million a day.
If those locations are shut down in the afternoon, the company could easily lose 20 percent, if not more, of its daily sales, or about $7.3 million. Of course, this quick calculation doesn’t take into account that morning sales are probably larger than afternoon sales or any revenue at the company’s licensed stores, which will remain open.
Jeff Sonnenfeld, a senior associate dean for leadership studies at Yale, estimates that Starbucks will lose about $12 million during the May closure.
“It’s well worth it,” he said during CNBC’s “Squawk on the Street” Wednesday. “When you look at the lawsuits at Denny’s, a huge multiple of that for racial discrimination in not serving customers properly … they paid some $60 million for that, but the reputation damage was awful.”
May 29 will mark the second time in the company’s history that Starbucks has closed its stores for an afternoon. In 2008, Schultz, then the CEO of the brand, was disappointed in how Starbucks’ espresso and steamed milk were being prepared and decided that all baristas needed to be retrained.
Starbucks shipped instructional DVDs and DVD players to all 7,100 of its company restaurants that were open at the time and closed the doors at 5:30 p.m. on a Tuesday in February. Schultz wrote in his book “Onward: How Starbucks Fought for Its Life without Losing Its Soul,” which was published in 2011, that the exercise cost the company $6 million.
Rivals used the training session as a promotional opportunity.
“One competitor tried to poach our customers by promoting 99-cent cups of espresso-based beverages,” he wrote, according to a Business Insider excerpt. “Some critics were brutal, insisting that by admitting we were broken we had forever dented the Starbucks brand. But I was confident that we had done the right thing. How could it be wrong to invest in our people?”
A decade later, the company will once again take this action. Once the training has been completed at company-owned locations, Starbucks will make it available to its licensed partners and it will become part of the cafe’s on-boarding process for new employees.
Starbucks’ leadership has impressed experts with how they have responded to this incident. While consumer sentiment has dipped slightly over the last few days, the company’s stock remains stable.
The company declined to discuss any financial hit it may take from the closure, but whatever it ends up being, it will not be seen until the third quarter. Right now, analysts are forecasting earnings per share of 66 cents on $6.38 billion in revenue, according to StreetAccount.
Starbucks is expected to report its second-quarter earnings on April 26 after the market close.
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