Retail Changes Key To Starbucks Closings Starbucks announced this week that it's closing about 600 stores, but it's not the only chain slimming down to meet hard economic times. Retail consultant Howard Davidowitz says consumers are going to get so scared they will start saving and spend less.
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Retail Changes Key To Starbucks Closings

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Retail Changes Key To Starbucks Closings

Retail Changes Key To Starbucks Closings

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This week, Starbucks, the java company that seemed headed for a store on every corner in America, Starbucks is closing 600 stores. The Seattle chain has been hit hard by bargain barista competitors at McDonald's and Dunkin' Donuts, plus a general decline in luxury spending. But consumers are cutting back on more than just their Venti Mocha Frappuccinos. Starbucks joins a growing group of retail chains that are closing doors, including major retailers like Dillard's, Gap and Home Depot.

Howard Davidowitz is a retailing consultant in New York and he joins us from our bureau there. Welcome to the program.

Mr. HOWARD DAVIDOWITZ (Retail Consultant): Thanks for inviting me.

WERTHEIMER: Can you give us some perspective on the Starbucks' store closings? Is it the economy or is Starbucks some kind of a special case?

Mr. DAVIDOWITZ: Starbucks is definitely not a special case. We're going to close somewhere between seven and eight thousand stores in America this year. When we look at some of the names, Bombay is closing all their stores. Kirkland is closing 100 stores, Pep Boys, C.A.M.P. USA closing all their stores.

WERTHEIMER: You're really depressing me.

Mr. DAVIDOWITZ: Yes, stores are closing all over the place.

WERTHEIMER: Is it expansion? I mean, the stores you mentioned are stores that you see everywhere. I mean, even in airports you see these stores.

Mr. DAVIDOWITZ: I think the major reason these chains are closing stores is the terrible condition of the American consumer who has 13 billion dollars in debt, who has negative savings, and add to that the tremendous inflation on energy and food. One hundred fifty million of our fellow Americans don't have any money.

WERTHEIMER: So what does that mean for the businesses where they have been spending money?

Mr. DAVIDOWITZ: We're going to have fewer stores simply because the American consumer is less dynamic. So when it comes to discretionary items, that is the disaster area. When it comes to things they have to buy, some of those companies are doing real well. If you're a big food seller - Wal-Mart is the largest food retailer in the United States. They're doing fine. If you are in the drugstore business, if you're CVS, if you sell what people have to have, you're doing OK.

WERTHEIMER: Do you think the days are gone when every store is in every mall so that it doesn't matter whether you are in Sandusky or San Diego, you see the same stores in every mall you go into?

Mr. DAVIDOWITZ: I think you put your finger on something important. Commoditization is a huge problem in the retail business. Everybody has got the same goods everywhere. The customer is bored stiff, and the real core issue is we've got 19 and a half square feet for every man, woman and child in the United States. It's way too much. We probably need 10. A lot of this is going to have to shrink. It's going to be terrible for employment but I think that's going to be necessary because I don't see the consumer getting better for a long time.

WERTHEIMER: It sounds like what you are saying is that even if the economy begins to recover and grow again, that retailing will just have changed. What will come after?

Mr. DAVIDOWITZ: Right now, we have the biggest housing crisis since the Great Depression, as you know. But when we start closing all these retail stores, we're going to have massive problems in commercial real estate. We are going to have to have fewer stores and at the end of the day, when you look at retailing and you say, what is going to happen? What is the American consumer going to do? I'm going to tell you what they're going to do. They're going to get so scared, they're going to start saving. And when they start to actually save, they're going to spend even less!

WERTHEIMER: Howard Davidowitz is the chairman of the national retail consulting firm, Davidowitz and Associates. I don't know whether to thank you or not for all this information.

Mr. DAVIDOWITZ: We did a good job.

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