Estimated reading time: 6 minutes
Key Takeaways
- Starbucks will shutter roughly 400 stores in 2025, focusing on under-performing urban sites.
- The move forms part of a broader reinvention plan to redirect capital toward drive-thru and digital formats.
- Management expects operating margins to improve by **60 basis points** within two fiscal years.
- Employees will receive priority transfers, severance, and reskilling opportunities.
- Analysts see the consolidation as a *defensive yet strategic* response to post-pandemic consumer shifts.
Table of contents
Reasons Behind the Shutdowns
Higher labour costs, inflation, and rising rents have compressed margins at many inner-city cafés. Starbucks’ internal review found that nearly one in five urban stores could not cover its cost base once recent wage increases were applied.
A significant share of the closures coincide with lease expiries. Rather than renewing on unfavourable terms, the company will vacate spaces in malls and transit hubs where footfall has lagged.
“Consolidating the portfolio frees resources for formats that meet customers where they are today—on the road and on their phones,” CEO Laxman Narasimhan told investors during the Q2 2024 earnings call.
Reinvention Strategy
Format evolution underpins the plan. Management is pivoting from classic cafés toward grab-and-go and digital-first concepts that support faster throughput and lower staffing models.
- More than 300 new drive-thru stores will open in suburban corridors, capitalising on commuter traffic.
- Mobile orders already account for over 25 % of U.S. transactions, according to company data.
- Stores are being retrofitted with dedicated pick-up zones and streamlined back-of-house workflows.
Real Estate & Store Optimisation
Each property now faces a rigorous return-on-investment test that weighs rent, traffic, and local demographics. Urban clusters with overlapping trade areas are being thinned to reduce cannibalisation.
Flagship sites in New York, San Francisco, and Chicago that command premium rents will remain open only if projected cash flow exceeds a newly raised hurdle rate.
Post-Pandemic Adjustments
Remote and hybrid work have reshaped foot traffic. Office-district cafés that once thrived on morning rushes now struggle, while suburban stores see afternoon spikes. Starbucks is therefore leaning into drive-thrus, smaller takeaway units, and neighbourhood-centric designs.
Kiosks and carts that cannot carry the full menu are being phased out, allowing reinvestment in formats with stronger brand expression.
Employee Impact & Corporate Response
Starbucks estimates that several thousand partners will be affected. The company has pledged priority transfers to nearby stores and created an internal job-matching portal.
Where redeployment is impossible, partners will receive severance, six months of health coverage, and free digital-skills training through the Global Academy.
Financial Implications
Management projects annual operating expenses will fall by about 2.5 % once the closures are complete, boosting operating margin by **60 basis points** within two years.
One-off restructuring charges of roughly USD 400 million will be recognised in fiscal 2025, covering lease exits, asset write-downs, and severance.
Equity analysts at Morgan Stanley forecast mid-single-digit EPS growth from 2026, driven by higher sales per store and leaner cost structure.
Outlook
Starbucks views 2025 as an *inflection point.* By pruning high-cost, low-return real estate and doubling down on convenience-driven formats, the company seeks to regain momentum in a fiercely competitive coffee market.
Management remains confident that the streamlined portfolio will deliver sturdier cash flow and provide a platform for sustained expansion over the next decade.
FAQs
Why is Starbucks closing 400 stores?
The closures target under-performing urban cafés with thin margins, allowing the company to reallocate capital toward drive-thrus, digital infrastructure, and growth markets.
Will my local store be affected?
Customers will receive at least 90 days’ notice if their store is selected for closure, along with directions to nearby alternatives.
What happens to employees at closing stores?
Partners are offered transfers wherever possible; otherwise, they receive severance, extended health benefits, and access to reskilling programs.
How will the strategy impact Starbucks’ finances?
Management expects operating margins to improve by 60 bps within two years, offsetting a one-time USD 400 million restructuring charge.
Is this a retreat from urban markets?
Not entirely. Starbucks will maintain flagship stores in key cities but will reduce overlap and focus on the most profitable locations while expanding suburban and drive-thru presence.
