Why do you include Ford in the list of companies that have received government bailouts?
Look at KMart, the onteime retail giant which went through bankrupcy and emerged as a shell of its former self. It’s business model didn’t let it compete with Walmart and Target. Macy’s, Sears, and the other traditional mall-based department stores are facing the same challenge.
Starbucks has to compete with Dunkin Donuts and in some regions Tim Hortons and Krispy Kreme. Not to mention all of the fast food places that have made an effort to market (if not actually make) better coffee. I think the Starbucks model is as fundamentally flawed as Blockbuster. They’re in big trouble.
In this climate it is difficult to tell if a particular company is being prudent, getting desperate, or just running scared.
I think we’re in a full-blown panic, folks.
The price of a company’s shares is not an indicator of financial health. Neither is P/E, since half of it is the stock price.
And why do you refer to Lehman Brothers as a company that cannot fail, since it actually did?
My mistake. I thought that Legman Brothers had received government aid. I now stand corrected. Thanks for disabusing me of that notion.
As to the question about Ford, I am aware that Ford didn’t receive bailout funds. However, considering that the other two of the Big 3 did, I don’t doubt that Ford would receive assistance if it asked for it.
Any company can fail.
There was a time when nobody could conceive of a major company like GM failing. However, without the government assistance they recently received, they would have been going through bankruptcy right about now.
This is the same company that was once the largest U.S. corporation in existence.
By law companies have to meet payroll, if they can’t that is a HUGE problem.
The thing is most companies do not know how to lay off the right people. It’s usually based o somthing like seniority, which is bad cause they are usually the people being paid the most. And they will get dumped on with extra work. This makes it even easier for them to get fed up and look for another job, then they leave. Thus you lost a knowledgeable person often to a competitor.
I know in the hotel business, after 9/11 they layed off people just as an excuse. They were looking to get rid of dead weight. I know it 'cause they said “In ever crisis there is an opportunity.” As the H/R person said “Starwood doesn’t exist to make employees happy, it exists to make money for their stockholders.”
I may have misunderstood, but I thought the inference intended by threemae’s comments was the other way around: their finances don’t look too healthy at the moment, therefore I don’t think their shares are good value.
Well, SBUX really does appear to be in trouble. Their sales were drastically down the last two quarters, their profit margin sucks, and they are facing stiff downmarket competition from the likes of McDonalds (whose profit margin DOESN’T suck) and Dunkin Donuts at a time when people are tightening their budgets. They also overbuilt, and have piled up debt.
http://finance.yahoo.com/news/A-value-meal-at-Starbucks-apf-14235529.html
ETA:
Oh, and they ARE still selling at high multiple.
A minor point, but Starbucks doesn’t franchise, except in special situations like airport concessions, and other places that are private property.
As far as Starbucks is concerned, I currently spend quite a bit of time in coffeehouses, for both good and bad reasons. Starbucks locations vary, but it seems in many that they are losing sight of the original concept of a “third place”, European style cafe.
(1) To begin with, they call the individual cafes “stores”. That’s a bad sign right there; you don’t usually go to a “store” to relax, or spend quiet time working on your computer. . Then some of the “stores” are so full of tchotchkes, mugs, and cups for sale that it seriously limits the space for tables and chairs.
(2) There’s no art on the walls, nor any other effort to engage the local culture. Art tends to be edgy. Presumably afraid of offending some people, they pander to the bland middle.
(3) They are unfriendly to local business in not allowing you to post any ads or biz cards. Ironic, since freelancers can usually take their work wherever they wish, and can choose to spend all afternoon in a coffeeshop. By contrast, most indy cafes do allow you to post your business card.
(4) A slight trend towards child-friendliness is becoming noticeable. On their customer response website, some folks are asking for play areas and sippy cups. Anyone can see that if you start to make the place more like Chuck E. Cheese, then the traditional clientele will absolutely and positively be driven away. Of course, people do need to stop in with their kids on their way to or from whatever, but the concept of “family friendly” is definitely inconsistent with the coffeehouse meme. In your home, would you try to sit in the living room and work on a school project at the same time you were having a holiday family gathering, with three or four kids included? You wouldn’t, and couldn’t.
So yeah, Starbucks can seriously lose its way, and what makes it bad for me is I still like them. It’s a decent place to go, most of the time, and I don’t want to see them get closed down, and the locations replaced with meal oriented restaurants that don’t want you to come in and just have coffee.
In this regard I just wanted to note that I went yesterday to an independent in Venice. They had beautifully painted skateboards on the walls, which gave a lift to my day. I’m not into skating at all, but it was fantastic to see that this cafe was willing to put them up as a kind of statement, as much as to say, “We think this is interesting. This is who we are.”
Last summer’s round of Starbucks store closings already took care of many of those Starbucks next to other Starbucks along with generally underperforming stores. They’ve recently announced another round of closings too.
And then Kmart bought Sears. AFAIK, both are in trouble. I was at a Kmart recently, and it felt like having a private store. The Sears half a mile away is not much better.
At least Sears sold off half of their interest in Orchard Supply Hardware a couple of years ago, so one of the better hardware stores doesn’t have to get clobbered.
I see Starbucks in the grand tradition of a “growth business”. Everything is geared towards expansion. As long as they are opening more stores, things are great. When things go static, let alone downhill, their business plan is not at all set up to deal with it in a smooth way. All it takes is an economic hit when they are nearing their maximum possible size and then kablooey. (That is the right technical term isn’t it?)
There have been several retail chains that have had this model in the last 20 years and very few of them end up well.
Except for something like a super-venti latte cream whipped cappafrappazaccino, coffee doesn’t cost five bucks at Starbucks. A basic cup of Joe is less than $2; as a lifestyle choice it isn’t a replacement for brewing coffee at home. As a place to go out, it’s cheaper than just about anything else, and is invaluable in that regard. People need to get away from home and work sometimes, and have an alternative besides fast food if they don’t drink alcohol, or don’t want to spend a lot. Additionally, in urban areas, coffeeshops give you a place to walk to. Walking is good for our health, they tell us, but without a place to walk to, it seems kind of futile.
Companies that are dong very well are also laying off people in North America because the jobs are being moved abroad. I speak from personal experience.
A coffee brewed at home is more like 33 cents. That’s why it’s one of the first things they tell you to do when trying to save money, people drink multiple coffees a day, every day, it adds up quick, and is a simple thing to cut back on.
All markets are pretty similar so lets pick on one easier to understand.
Housing. It has been going through a cycle simialr to what you have above. How does it stop?
Well…people know that it will turn around at some point…it always has…but you don’t want to buy until you’re sure it has hitten bottom. How do you know it is the bottom? You don’t.
So you wait…and wait…and wait. Suddenly, the market takes off. Ahhhh, you say…this is just a sucker move…so you wait.
The market keeps rallying. All of a sudden, these lurkers get scared that they have missed the bottom and jump in. This is how you can get a bounce off the bottom in the housing market.
Same can occur in the economy. First people with the investment money have to take the pain. then they have to deal with the pain…then they have to look for a bottom…miss it then get paranoid that they are missing out.
Basically, bottoms/turnabouts are formed when people stop worrying about losing/pain and start to worry that they are missing the boat. Helping it out is that there are many dead bodies around and so less competition. Also, workers are beaten down so labor costs are lower.
I gave my wife an espresso machine for her birthday one year, and it was my best investment ever. You can save back the investment in one of them in a matter of months. She works from home, so she saves gas making her own also. (Saving money wasn’t the reason I gave it to her, it just worked out that way.)