The death of the American shopping mall just took another victim. Starbucks (NASDAQ: SBUX) announced with its third-quarter earnings results that it will close all 379 Teavana locations over the next year. Starbucks bought Teavana in 2012 for $620 million, and modestly expanded its store count over the last five years. But as mall traffic falls and Starbucks struggles to live up to expectations for comparable-store sales, it’s cutting some of the fat.
“Many of our Teavana mall-based stores have been persistently underperforming,” CEO Kevin Johnson said on Starbucks’ third-quarter earnings call. “We conducted a strategic review of the Teavana mall-based store business and concluded that despite our efforts to reverse the trend through creative merchandising and new store designs, the underperformance was likely to continue.”
Getting rid of Teavana stores may cause some short-term pain, but should result in a slimmer, faster-growing Starbucks.
Getting rid of Teavana stores will effectively dissolve Starbucks’ “all-other segments.” The only thing left will be its Starbucks Reserve stores, of which there are only a handful of locations right now.
All-other segments has produced a modest operating loss for Starbucks every year since its Teavana acquisition. This past quarter, Starbucks took a $102 million asset-impairment writedown on Teavana. Overall, the writedown had a 0.6% negative impact on operating margin for the quarter. Starbucks will likely suffer more costs as it closes down most of the 379 Teavana stores over the next year.
In the long term, however, it should pay off. As mentioned, Teavana stores were creating an operating loss…