Here’s Why Starbucks Is Closing Its Online Merchandise Store

by Trefis Team
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Reports suggest that Starbucks (NYSE:SBUX) is shutting down its online store which sells merchandise such as mugs, coffee brewers, etc., in what appears to be an attempt to attract traffic to its physical stores. In Q3 2017, while the company reported growth in comparable sales, it was due to an increase in ticket size and guest count remained flat. Starbucks also announced that it would be closing down its Teavana stores in malls, given their lack of performance. As the retail landscape shifts towards the convenient online shopping and home delivery model, restaurants are finding it difficult to attract customers to their stores. Starbucks’ initiative to close its online merchandise stores could attract more customers to its stores and also unify its digital initiatives.

Simplifying Digital Initiatives

Starbucks is focusing on its mobile order and payment system and the company is looking to enhance this system to drive more sales via this convenient system. Currently nearly 30% of the company’s sales come via its digital ordering system and the company is now looking to engage customers digitally. Data analyzed by Starbucks reveals that once a customer signs up for a digital relationship his spend on the restaurant increases and these digitally engaged customers are likely to drive profitable growth in future. The company is deploying new personalization technology and a new front end for its app to drive this engagement further. As these initiatives focused on the mobile app and building loyal customers, disbanding the online merchandise store seems to be a logical step. Starbucks is looking to digitally interact with all its customers via one platform and is eliminating other online ways of connecting with the customer – since this can create a scattered audience.  This step should help the company to consolidate its digital customers and engage them better.

Attracting Guest Traffic To Its Stores

According to our estimates, the average daily customers per Starbucks company owned store is likely to decline from 467 in 2017 to 463 in 2018 and then increase gradually to reach around 480 by the end of our forecast period. Higher customers at stores drive comparable sales and revenues for the company and, in turn, impact its valuation positively.

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By ensuring that there is no dedicated store to sell its merchandise, Starbucks is looking to improve guest traffic to its stores or lure these customers to sign up for its digital ordering platform to ensure that it does not have a scattered customer base which the company is not able to actively engage. We believe this strategy will allow Starbucks to focus on its customers better and improve its digital engagement initiatives which are likely to be a key growth driver in the long term.

 

 

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