- The Washington Times - Wednesday, January 9, 2008

SEATTLE (AP) — Over the past two decades, Howard Schultz took Starbucks Corp. from a handful of quaint coffee houses and turned it into one of the world’s most ubiquitous brands.

With the company faltering amid a sagging economy and increasingly fierce competition from cheaper rivals, his new job is to turn things around — slowing growth in the U.S. and closing some shops, ramping up expansion overseas, streamlining management and focusing more on things such as new drinks and other products that will lure customers back.

It’s a tall order — no, make that a double-tall — but most analysts seem to think he’s up to it.

“Much of what’s happened to Starbucks over the last year has been economic in nature. That said, the company could use some reinvigoration, and if anyone’s going to reinvigorate the company, it’s going to be Howard,” said Sharon Zackfia, an analyst with investment firm William Blair & Co.

After more than a decade of impressively steady growth, Starbucks shares have been in free-fall over the past year, plunging more than 50 percent.

But on Monday, when Starbucks fired Chief Executive Officer Jim Donald and gave the job back to Mr. Schultz, the company’s chairman, the stock jumped 9 percent in after-hours trading, and climbed again yesterday, rising $1.48, or 8 percent, to close at $19.86.

Some observers question whether Starbucks can re-energize itself. In a research note yesterday, Goldman Sachs analyst Steven Kron said the company faces factors beyond its control, including stiffer competition and rising prices for commodities such as milk and coffee beans.

Starbucks is waiting until it reports first-quarter earnings Jan. 30 to announce details on how much growth will slow down in the U.S. and pick up overseas, but Mr. Schultz said international expansion will be crucial to the company’s recovery.

“There continues to be an enormous opportunity for us internationally, and we are just at the beginning of capitalizing on it,” Mr. Schultz told analysts Monday.

Starbucks’ first store outside North America opened in Tokyo in 1996, when the company had fewer than 1,000 stores. Today, it has more than 15,000 stores worldwide, nearly one-third of them in 42 countries outside the U.S.

Mr. Schultz said Starbucks has no plans to stray from its long-term target of having 40,000 stores, half of them overseas.

Despite the cheaper premium brew that McDonald’s Corp. and Dunkin’ Donuts have added to their menus, Mr. Schultz and some analysts don’t think such competition is that big a threat.

“I think people would be hard-pressed to find quantitative evidence that competition has been an issue,” Ms. Zackfia said. “At the end of the day, Starbucks has always had lower-priced competition. What they need to re-emphasize in the stores is why customers should pay them the premium price.”

Mr. Schultz, who was Starbucks’ CEO from 1987 to 2000, said the company’s heavy emphasis on growth in recent years has blurred its focus on ways to keep customers happy. He shouldered some of the blame for that.

“When you succeed at this level for so long … you get a little soft,” Mr. Schultz said. “We have to get back to what made this company great, and that is to have the courage and curiosity and the commitment to do things that have not been done before.”

In addition to offering new drinks, Mr. Schultz said the company will work to get the growing number of people who buy bottled and canned coffee drinks — hugely popular in Asia — and packaged coffee to frequent its stores.

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