Starbucks for years tried to become an essential store on the avenues of New York, Los Angeles, and other major American cities. Now, that is coming to a close.
Its expansion once seemed limitless. It was even a joke. In 1998, an Onion headline read: “New Starbucks Opens in Restroom of Existing Starbucks.” A few years later, comedian Lewis Black remarked that he had reached the “edge of the universe” in Houston when he saw one Starbucks directly across from another.
But Starbucks is now struggling, and its strategy of saturating urban areas to attract coffee enthusiasts on their morning commutes has turned into a setback amidst rivalry, the rise of remote work, and increased expenses.
So, CEO Brian Niccol, hired last year from Chipotle to revitalize Starbucks, no longer desires his locations to be positioned close to one another. Starbucks is shuttering about 400 shops nationwide, concentrated in major metropolises, as part of a $1 billion restructuring initiative.
Starbucks has closed 42 units in New York, representing 12% of its total city footprint. It recently yielded the top spot as Manhattan’s largest chain to Dunkin’, according to data from the Center for an Urban Future, a New York-based think tank tracking chain openings and closings.
Starbucks has reportedly also shut down over 20 locations in Los Angeles this year; 15 in Chicago; seven in San Francisco; six in Minneapolis; five in Baltimore; and dozens more in other locales.
The chain reviewed its more than 18,000 locations across the U.S. and Canada and “closed stores that were not meeting our brand standards or were unable to meet our brand standards,” a Starbucks spokesperson stated in an email. The firm intends to inaugurate new locations and renovate others through 2026, including in major metropolises like New York and Los Angeles, “with refreshed designs and elevated experiences that reflect the Starbucks brand.”
A Victim of Its Success
In many ways, Starbucks pioneered the business model that is now contributing to its difficulties.
Before Starbucks emerged, people could not fathom spending over two dollars for a cup of coffee, let alone the concept of a latte.
But now Starbucks is closing urban locations partly because it has been overwhelmed by competition from niche coffeehouses, smaller chains like Gregory’s and Joe’s Coffee, and a surge of smoothie, bubble tea, and other beverage establishments.
“Urban America has seen a sharp increase in competitive coffee shop openings, which are diminishing shop volumes,” remarked Arthur Rubinfeld, who developed Starbucks’ real estate and design strategy alongside CEO Howard Schultz in the 1990s and again from 2008 to 2016. Rubinfeld now heads Airvision—a consulting firm for consumer brands.
Starbucks, which began in Seattle’s trendy district, is now over 50 and sees more avenues for expansion and profitability in suburbs, analysts note. This involves expanding drive-thru locations in suburban areas where labor, rent, and other operating costs are lower than in the nation’s priciest cities.
Remote Work and Homelessness
Other factors have also led Starbucks to shutter cafes in cities.
New York, Chicago, Los Angeles, and San Francisco saw population declines post-pandemic in 2020, shrinking their customer bases, although these cities began recouping losses starting in 2023.
Remote work has dealt a lasting blow to Starbucks in many business districts that relied on vast numbers of office workers commuting daily, resulting in the company closing ground-floor branches of several office buildings downtown in Los Angeles, stated Kathryn Ye, director of market analysis for CoStar Group.
Starbucks has faced challenges operating in tough urban markets.
Starbucks has faced challenges operating in tough urban markets. Spencer Platt/Getty Images
Furthermore, the company grew weary of being the default provider of public restrooms for many American cities.
“The nation’s mental health crisis is serious,” former CEO Schultz asserted in 2022. “There is a safety issue in our stores when people walk in and use them like public toilets.”
Starbucks discontinued its policy this year that allowed anyone to linger in their stores or use the facilities without making a purchase, and it has posted signage prohibiting panhandling, consuming alcohol, and vaping near its locations.
“Harder Harder Challenge”
The closures are part of Niccol’s efforts to invigorate Starbucks following years of sales declines, strategic missteps, and continuous turnover at the executive level.
The chain is attempting to win back customers who prefer to sit down with their coffee by upgrading 1,000 stores—10% of its American locations—with chairs, couches, tables, and power outlets over the next year.
However, the recovery under Niccol’s leadership is taking longer than some investors had hoped. Starbucks stock (SBUX) has dropped by about 6% this year.
Renovations may assist Starbucks in its comeback, but improving in-store operations presents a more substantial hurdle for the company, noted William Blair analyst Sharon Zackfia.
Starbucks serves customized beverages in one spot to two distinct types of patrons—those who want to grab coffee and go, and others who wish to sit and linger—and it struggles to accommodate these competing demands.
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