Why Starbucks, Whole Foods, and others are closing stores in downtown San Francisco
From Amazon to Gap, consumer-facing chains are closing their doors in downtown San Francisco. Soon, Starbucks will be among them.
Starbucks (SBUX) is the latest company to rethink its presence in San Francisco.
Effective Oct. 22, the coffee giant plans to close seven stores in San Francisco. Following these closures, there will be 52 remaining Starbucks locations in the city.
Starbucks did not disclose the reason for the closures. In a letter to employees, Jessica Borton, the Northern California regional vice president, stated: "There are several factors Starbucks considers when tasked with the tough decision of closing a store, but it is all part of ensuring a healthy store portfolio."
Starbucks isn't the only consumer-facing giant to take a second look at its San Francisco portfolio this year.
Other companies that recently closed locations in San Francisco include Amazon (AMZN), which closed a Whole Foods Market just 13 months after opening it earlier this year and all four Amazon Go Stores in March; Office Depot (ODP), which closed a store in April; and Anthropologie (URBN), which left Union Square after two decades in May.
Gap (GPS) also shuttered Old Navy, Banana Republic, and Athleta stores this year, while Nordstrom (JWN) closed its flagship store in August, and Saks Off 5th shut its doors this fall.
The Starbucks stores being added to this list are located on Mission and Main, Geary and Taylor, 425 Battery, 398 Market, 4th and Market, 555 California, and Bush and Van Ness. It's worth noting that none of the stores set to close are unionized and employees at the stores will be offered the opportunity to transfer to other locations.
San Francisco sluggish in returning to offices
What's behind the exodus? Hybrid and fully remote companies may be partly to blame.
"A big component for sure is that people are remote working and not coming into those offices as much," John Zolidis, president of Quo Vadis Capital, told Yahoo Finance. "That's got to be one of the driving forces — just less traffic from office workers."
Per foot traffic analytics platform Placer.ai, San Francisco has the lowest number of visits to offices of any major US city. In August 2023, office visits were down 52.7% compared to August 2019, before the pandemic disrupted workplaces.
San Francisco is "by far the slowest to come back," Ethan Chernofsky, senior vice president of marketing at Placer.ai, told Yahoo Finance. "When you think about what that means for retail more broadly ... lots of people work there and then shop there and eat there, so that's obviously going to have an impact. ... Then, even [the] people who are coming back to the office [are] not doing so five days a week."
Migration patterns — such as people moving out of the city — are a factor too, Chernofsky said, affecting cities across the US as well as San Francisco. And if retailers leave a city, it can lead to fewer visits to that area as well, causing companies to further reconsider their real estate portfolios.
"We see significant headroom for new store growth in underpenetrated areas in the US, including smaller cities, as well as new formats in larger metros," Starbucks CEO Laxman Narasimhan said on a call with investors following its Q3 earnings results.
However, the tide may be turning for San Francisco, with the artificial intelligence boom acting as a bright spot for activity. Just as the tech industry was the first to move to remote work during the pandemic, it may be a leader in bringing workers back to offices.
"San Francisco and the Bay Area in general is really a market that's led by the tech industry," Colin Yasukochi, executive director at CBRE’s Tech Insights Center, told Yahoo Finance. "Over the last six months ... they're starting to see growth perk up in the tech industry. Artificial intelligence is one of those particular areas where the companies are actually looking to expand — they're looking to upgrade the [office] space that they currently have to provide a better experience for their employees."
A 'difficult operating environment'
Crime and safety may also be playing a role.
On Sept. 26, Target (TGT) announced plans to close nine stores at the end of October, including three in the San Francisco and Oakland area. Target said crime and retail theft were the reasons behind the decision to close stores.
"We cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance," the company said in a statement.
According to crime data on the city's website, theft has been the top issue, followed by burglary. That has affected not only whether companies open retail space in the city but also where they choose to expand.
"On-the-ground type of issues have probably impacted where companies are willing to be located in terms of their office space," Yasukochi said, "which is why we've seen a greater concentration of companies looking for space in the central business district and less so in the South of Market or mid-market areas."
For Starbucks, though, it's a bit harder to understand if crime truly was a factor. A spokesperson for the company declined to comment on whether safety played a part in the decision in particular.
"There's not large quantities of merchandise to steal and resell," Zolidis said about Starbucks stores, though he added: "It's just a difficult operating environment from an employee safety perspective."
Another factor affecting how companies position themselves in the Golden State could be the approach of a minimum wage law that goes into effect on April 1. The law, which raises starting pay for fast food workers to $20 an hour, is one to watch, Zolidis said.
But, he added, "if that were a deciding factor [for Starbucks], it wouldn't be seven stores in San Francisco [but] a much broader group of stores."
Meanwhile, San Francisco Mayor London Breed remains optimistic about the city's future, despite its challenges.
"People still want to be here," Breed told Yahoo Finance in a recent interview at Salesforce's annual Dreamforce conference. "They're starting their companies, their businesses here."
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
