CNN
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Starbucks has been trying for years to become an important storefront on the streets of New York, Los Angeles and other major US cities. Now it is coming to an end.
Its expansion once seemed limitless. It was even a joke. In 1998, a headline in The Onion read, “New Starbucks opens in bathroom of existing Starbucks.” A few years later, comedian Lewis Black joked that he had been to the “end of the world” in Houston, where he saw a Starbucks directly across the street from another.
But Starbucks now faces some challenges, and its strategy of saturating urban areas to attract coffee drinkers on their way to work in the morning has backfired amid competition, the rise of telecommuting and rising costs.
So CEO Brian Nicol, hired last year by Chipotle to revive Starbucks, no longer wants his stores to be located nearby. Starbucks is closing about 400 stores in the United States, concentrated in large metropolitan areas, as part of its billion-dollar restructuring plan.
Starbucks closed 42 locations in New York, 12% of the city’s total. It recently relinquished its top spot as Manhattan’s largest chain to Dunkin’, according to the Center for the Urban Future, a New York-based think tank that tracks chain openings and closings.
Starbucks also reportedly closed more than 20 Los Angeles locations this year; 15 in Chicago; seven in San Francisco; six in Minneapolis; five in Baltimore; and dozens more in other cities.
Nicole is once again trying to reposition Starbucks as a “third place” between home and work.
The chain analyzed its more than 18,000 stores in the United States and Canada and “closed those that did not perform well or did not meet our brand standards,” a Starbucks spokesman said in an email. The company plans to open stores and remodel others in 2026, including in major metropolitan areas such as New York and Los Angeles, “with updated designs and cutting-edge experiences that reflect the Starbucks brand.”
In many ways, Starbucks pioneered the business model that is now responsible for its problems.
Before Starbucks, people couldn’t imagine paying more than two dollars for a cup of coffee, let alone the concept of a latte.
But now Starbucks is closing urban locations in part because it has been overwhelmed by competition from niche coffee shops, smaller chains like Gregory’s and Joe’s Coffee, and a wave of smoothie, tea and other beverage shops.
“Urban America has seen a dramatic increase in the opening of competitive coffee shops that are driving down sales,” said Arthur Rubinfeld, Starbucks’ head of real estate and design strategies with CEO Howard Schultz in the 1990s and again from 2008-2016. Rubinfeld now runs Airvision, a consumer brand consulting firm.
Starbucks’ sales have stagnated in recent years, and closing the lagging cafe could also boost sales at the one next door, which is “bigger, cozier and close enough for a loyal customer,” Rubinfeld said.
Starbucks, which got its start in Seattle’s trendy neighborhood, has been around for more than 50 years and analysts say it sees more opportunities for growth and profitability in the suburbs. It is expanding its drive-thru stores in residential areas, where labor, rent and other operating costs are lower than in the nation’s most expensive cities.
Other pressures have also forced Starbucks to close cafes in cities.
New York, Chicago, Los Angeles, and San Francisco all lost population after the pandemic in 2020, shrinking the size of their markets, though those cities started to recover losses starting in 2023.
And telecommuting has dealt a sustained blow to Starbucks in many central business districts that relied on large numbers of office workers commuting each day, prompting the company to close ground-floor locations in several downtown Los Angeles office buildings, said Kathryn Yeh, director of market analysis at CoStar Group.
The company is also tired of being the preferred supplier of public restrooms in many American cities.
“The mental health crisis in the country is serious,” former CEO Schultz said in 2022. “There is a security problem in our stores when people enter them and use them as a public toilet.”
This year, Starbucks reversed its policy of allowing anyone to linger in its stores or use the restroom without making a purchase, and posted signs outside its stores prohibiting carousing, drinking and vaping.
The closings are part of Niccol’s efforts to revive Starbucks after years of declining sales, strategic missteps and CEO backlash.
The chain is trying to win back customers who want to sit down with a cup of coffee by renovating 1,000 stores (10% of the company’s U.S. stores) with chairs, couches, tables and outlets over the next year.
But recovery under Nicolas is taking longer than some investors expected. Starbucks shares are down about 6% this year.
Remodeling could help Starbucks’ recovery, but improving store operations is a bigger hurdle for the company, said Sharon Zakfia, an analyst at William Blair.
Starbucks serves customized beverages in the same location to two different customer groups: people who want to have a coffee and leave, and others who want to sit and stay for a while, and find it difficult to satisfy these competing demands.
“It’s not an easy fix,” Zakfia said. “It was a more difficult process than many expected.”
