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Starbucks CEO: One currency matters most with the consumer

Nicole Sinclair
·Markets Correspondent

Starbucks (SBUX) has been able to post strong growth while so many traditional retailers continue to report declining traffic.

“One major retailer after another post numbers that are somewhat disappointing,” Starbucks founder, chairman and CEO Howard Schultz said. “What it says is that this is not a time to embrace the status quo, that experiences matter.”

Schultz joined Yahoo Finance this week to break down just how Starbucks has found success with its customers.

“I think the currency that matters most is your values and the trust with the consumer,” he said. “And I think that’s what we’ve tried to do. If you look at all the things we’ve done around social impact.”

The missing ingredient for many retailers, according to Schultz, is an emotional connection with the consumer--something that Starbucks has emphasized.

“I think this is a challenging time and it’s going to take the ability of companies to navigate through the storm, not embrace the status quo,” he said. “I think over the long term, the things that we’re doing, the investments we’re making, the focus we have on innovation, product, technology, our own people, and obviously the experience that we’ve been creating with the roasteries all speak to the fact that we’re building a great, enduring company that will not be affected by the current issues.”

While traditional retailers from Macy’s (M) to Nordstrom (JWN) to Target (TGT) continue to report decelerating trends, Starbucks posted a 6% increase in comparable store sales for its second quarter, the company’s 25th consecutive quarter at or above 5%.

Admittedly, Starbucks and the department stores do not compete in the same retail categories. But many Starbucks stores are within the vicinities these other stores. When fewer people go out shopping, fewer people are likely to stop for food and beverages.

On the company’s conference call in January 2014, Schultz pointed out the seismic shift underway in brick-and-mortar retail.

“Holiday 2013 was the first in which many traditional brick-and-mortar retailers experienced in-store foot traffic give way to online shopping in a major way,” he said. “Starbucks’ unique combination of physical and digital assets positions us as one of the very few consumer brands with a national and global footprint to benefit from the seismic shift under way.”

While these forces have intensified, the Seattle coffee giant has continued to grow into a force beyond the caffeinated beverage. The chain’s 25,000 retail locations have become a “third place”--after home and work--for consumers around the world.

Schultz conceded that even Starbucks is not immune from consumer behavior changes and that he takes seriously the responsibility to change with the times.

“Anyone that knows me knows that I worry about a lot of things,” Schultz said. “We don’t want to take anything for granted.”

Specifically, the company has been making a big push in the mobile experience. The company has about 19 million users of its mobile app in the U.S. alone, and mobile payment represented 24% of total U.S. tender in its most recent quarter.



Meanwhile, Schultz emphasized the social capital he has built through benefits for employees including education initiatives and the recent announcement to hire 10,000 veterans by 2018.

“I’ve always believed that to build a great, enduring company, it takes the kind of authentic leadership that is steeped in humanity,” he said. “For us, that has meant achieving the fragile balance between profit and social impact.”

Schultz added that Starbucks was the first company in America to provide equity in the form of stock options and comprehensive health insurance well before the Affordable Care Act.

“All these things I think are linked to the values we feel we should have,” he said. “The question we want to keep answering is what is the role and responsibility for a for-profit public company, and it’s not just to make money. And I think we have to do both.”