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March 12, 2007

Solving Starbucks Problems : LACK OF MERCHANDISE FOCUS

This post continues the series where Paul Williams and I, two former Starbucks marketers, offer recommended changes based upon Howard Schultz's email to the Starbucks leadership team.
"The merchandise, more art than science, is far removed from being the merchant that I believe we can be and certainly at a minimum should support the foundation of our coffee heritage. Some stores don't have coffee grinders, French presses from Bodum, or even coffee filters.” -- Howard Schultz email

Over the years, Starbucks has experimented in expanding its merchandise strategy well beyond coffee. All with varying results. Translucent dustpans didn’t sell. Neither did fancy pencil sharpeners, nor did T-shirts. But music CDs have sold well. As have board games like Cranium and so have Bearista Bears.

Bearista Bears?


In 1997, Starbucks made a huge leap of faith that forever changed the company’s merchandise strategy. Prior to 1997, Starbucks merchandise consisted mainly of coffee mugs, endless tumblers, coffee makers, home espresso machines along with all the accessories, and of course—whole bean coffee. Most stores had multiple merchandise bays and in-aisle display racks to sell all this coffee-related merchandise. Sales of coffee merchandise were strong. At some locations, merchandise sales comprised nearly 20-percent of a stores total sales.

But as Starbucks opened more locations in more neighborhoods, merchandise sales began to decline. Customers only need so many tumblers and so many mugs. Yet, Starbucks would roll-out new tumbler and mug designs every month. With sales slumping, Starbucks’ then VP of Merchandise, a former Disney exec, unleashed some Disney magic and introduced the Bearista Bear, a plush toy.

Plush toys at Starbucks? Scoff all you want but these cute and huggable plush dolls sold very well. So well that an entire line of Bearista Bears were introduced. And so well that an entire line of collectible toys were introduced from Finger Puppets to Holiday Ornaments to Die Cast Starbucks-branded trucks to a Vintage Pedal Car.


It’s not like we weren’t aware of how far the in-store merchandise focus had strayed—we were. Paul and I would shake our heads at some of the stuff we were having in-store marketing signs created for. Paul and I would also shake our heads at some of the strong sales these off-kilter products were recording. (Believe it or not, dollar-wise, Starbucks would record more sales from Finger Puppets than from Tazo Tea. Seriously. I ain’t kidding.)

With sales success from non-coffee-related merchandise, Starbucks began to reduce the coffee-related merchandise assortment. Starbucks significantly reduced its assortment of coffee makers and espresso machines. No longer was the company introducing new mugs and tumblers every month. And low ticket items like coffee filters became invisible inside Starbucks.

Hear Music at Starbucks
Also happening at this time was the success in selling music compilations. Starbucks first dabbled in music by selling compilation CDs of jazz music. That spawned more CD compilations from a wider-range of music genres. Eventually, Starbucks went full throttle into the music business by buying a small retail shop, Hear Music, and turning it into the musical voice of the Starbucks brand.

And that leads us to today where Starbucks is more known for selling Bearista Bears and CDs than they are for selling Ethiopia Sidamo whole bean coffee. By venturing far outside of its comfortable home of coffee to increase merchandise sales, Starbucks has abdicated its coffee leadership position. How could customers take Starbucks as being serious about coffee when they are also serious about selling plush toys?

Coffee First and Second
To help reclaim its coffee leadership position, as Howard has challenged his company to do, Starbucks must refocus its merchandising efforts. I recommend Starbucks ask itself two simple questions to help guide the company on refocusing its merchandise strategy back to coffee.

The first merchandise question Starbucks must ask itself is … (#1) Does this product link directly to coffee? If yes, sell it. If no, don’t.

Bearista Bears, Finger Puppets, and Pedal Cars fail this test—they have no link to coffee. Starbucks should not sell them.

Coffee mugs and tumblers do link to coffee. Starbucks must continue selling them.

Coffee makers, whole bean grinders, and espresso machines all link to coffee, and thus should continue to be sold. But Starbucks must offer customers more options with their home brewing assortment. It’s sad, but true, that Home Depot has better assortment of coffee equipment than does Starbucks. I can also find more creative and inspired coffee makers while riffling through the on-airline Sky Mall catalog.

Starbucks has been innovative over the last few years selling ultra-high end espresso machines. These automatic machines cost hundreds and hundreds of dollars which only appeal to a very limited audience. Starbucks needs to bring that innovative spirit to the mid-range brewing equipment market. When the all-in-one grinder/brewer machines made a splash in the market a few years ago, Starbucks didn’t any to sell. They missed that curve. Starbucks must create the next curve of home brewing equipment today.

Once a product has made it past the first question and it’s coffee linkage is strong, Starbucks needs to ask a second question ... (#2) Does the quality of this product match the high-quality of Starbucks coffee. If yes, sell it. If no, don’t.

Starbucks is very proud of its coffee. They truly believe it is best-in-class. Starbucks must not waste our time with products that are not as good as its coffee. Some of the coffee brewers the company has sold have not been of the best quality. For years Starbucks sold a Kontak coffee brewer that was sub-par. These days Starbucks sells coffee brewers from De’Longhi and a few under the Starbucks Barista brand name. The brewers are of adequate quality. But Starbucks doesn’t believe its whole bean coffee is adequate. Starbucks believes its coffee is the best of the bunch. So the company needs to apply its strict quality standards set forth for coffee to its merchandise.

Just Because you Can, Doesn’t Mean you Should.
What about books and music? Neither links directly to coffee. Yet, the company has been successful in selling both. Three weeks ago Starbucks began selling a memoir by a former Sierra Leonean child soldier. So far, the company has sold over 62,000 copies of this book. (Folks, that’s a lot of books!!!) Starbucks has also been very successful in selling CDs of established artists like Ray Charles and emerging artists like Antigone Rising. Rumor has it the company will step deeper into the music business by forming its own record label, Starbucks Records, and release Paul McCartney’s next CD.

Should Starbucks refrain from selling books and CDs? Tough question to answer. We can’t dismiss the fact customers view Starbucks as a lifestyle editor helping them to become hip to cultural goings-on. It’s become obvious, based upon strong sales, that customers want Starbucks to sell Books and CDs.

Maybe it’s time to play the “Just because you can, doesn’t mean you should.” card.

Just because Starbucks can sell Bearista Bears, doesn’t mean the company should. Same goes for Finger Puppets, Books, and Music. There is a cost to everything Starbucks sells. The selling of Bearista Bears and Finger Puppets probably does more damage to the soul of the Starbucks brand more than does selling Books and CDs.

It takes discipline and focus for companies not to over-extend their brands in search of sales. Just because a company can extend its brand, doesn’t mean it should.

For example, in 1999 Starbucks over-extended its brand in search of sales. The prevailing wisdom of Starbucks upper management guiding this growth strategy at the time was: “Our customers have given us permission to branch out into lifestyle areas beyond coffee.” Thus, Starbucks started a full-service restaurant, a literary magazine, and a variety of other ventures far outside its comfortable home of coffee. All of these brand extensions failed.

Following these failed forays into lifestyle brand extensions, the prevailing wisdom of Starbucks upper management became: “Sometimes you have to leave home to realize how sweet home really is.” Thus, Starbucks pledged to seek sales growth opportunities by focusing supremely on areas closer to home—its core business of coffee.

Hmm … it’s like déjà vu all over again, isn’t it?

That’s just my take. I’m sure Paul Williams over at the Idea Sandbox blog has some more pointed advice for how Starbucks can overcome its lack of merchandise focus.

UPDATE: In his reply post, Paul adds two more worthy merchandise guardrail filters to the mix. Good stuff!!

Series Review & Preview
Introduction post
LOSS of COFFEE THEATRE: Paul’s post and my reply
LOSS of COFFEE AROMA: My post and Paul’s reply
LOSS of STORE SOUL: Paul’s post and my reply
LACK of MERCHANDISE FOCUS: My post and Paul's reply
LOSS of IDENTITY: coming soon


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Yesterday the New York Post broke the story that Starbucks is going to launch its own record label and wants Paul McCartney to offer the first release. The new company name will be Starbucks Records and could sell music via in-store kiosks. Of course, ... [Read More]

» Solving Starbucks Problems - 4. Lack of Merchandise Focus from Idea Sandbox Blog
This is the 4th in a series of 5 posts where John Moore and I, two former Starbucks marketers, offer recommended changes based upon Howard Schultz's email to his leadership team. "The merchandise, more art than science, is far removed from being the m... [Read More]

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The "just because you can" discussion is right on. However, one of things that struck me was the assumption that Starbucks is about coffee. At one point wasn't Starbucks using coffee to create a "third place?"

If Starbucks is about creating the third place wouldn't the environment of the third place then be core and CD's, machines, heck - even the furniture, be considered part of the brand promise and be "revenue-ized."

You mentioned it in the end of your post - Starbucks is about lifestyle. That made me think of Playboy when if first came out - it was about lifestyle not nudity. Is Starbucks really more about lifestyle than coffee? Coffee is simply the hub or the keystone of the lifestyle.

Just some pre-caffeine thoughts.

Update to my previous comment....

You mention the failures in the lifestyle extensions. Is the issue poor execution of the "lifestyle" strategy or a poor strategy to begin with?

Paul ... given Howard's battle cry email, he has a desire for the company to re-center itself around the coffee heritage the company was built upon. Doesn't mean the company should lose its "third place" promise. Just means Starbucks needs to be more careful in what it chooses to place in the "third place" spaces of its stores.

FYI ... all of my ideas are based upon the problems Howard listed in his email to key SBUX execs. Those problems addressed the loss of coffee heritage with the Starbucks business.

A follow up on Paul's comment: Starbucks needs to be a specific kind of "third place"-- a cafe, or coffee-house. The coffee-house experience includes the background music and the possibility of lingering over a book, so the CDs and the books make sense as merchandise for Starbucks.

I'm not surprised that the random life-style extensions failed.

I love what you guys are doing. Having read the Bedbury book, I think the notion of the "third place" or as Bedbury put it, "meaningful everyday experiences" has led Starbucks into deeper and deeper doo.

Gosh I thought it was all about coffee, as do the poor bastards who are incapable of getting through the day without a beverage that has six adjectives.

I totally buy Howard's notion that the push-button machines were a fatal mistake, not only because the stores no longer smell or sound like a coffee shop, but because a button-pusher is not a Barista. There was at least the appearance of artistry back in the days of the old machines, and now it has the vibe of squirting mustard on an assembly line burger. It's not just the lack of theater, its the vacant or indifferent stare that was once unheard of behind the counter, and is now common.

Still addicted, but praying for Peet's.

Has anybody been to the US Post Office recently and heard their anemic sales pitch as you finalize your payment method to send the package to your loved ones?

"Would you like to buy a bear?" as the civil servant rolls his eyes and half-heartedly points with a head shake towards 3 or 4 pathetic teddy bear things hanging from the aluminum grid on the back wall (just under the clock at most locations). For some reason, the US Post Office wants to sell you a friendly bear and the clerks are forced to offer you the chance everytime you buy a single stamp - not unlike the fake/forced/annoying personalization you endure when paying for your late night Ben & Jerry's run at Safeway. The clerks just can't possibly not attempt to butcher your last name because, hey, you just might be the "mystery shopper" who's going to get them fired for not faking they're sorry you couldn't be at their Sunday BBQ. Good grief.

I am a starbucks customer who does not buy coffee. I go to starbucks as a meeting place, for friends, colleagues and even clients.

What's the breakdown of starbucks sales by product?

I visited a starbucks store recently and was disappointed with the choice of merchandise. Someone in an earlier post said that merchandise should be linked to coffee which is true, but in my opinion a shirt, cap or keychain, standard as they may be sounds alot better than bearista bears and finger puppets.

Let's face it.. women are the shoppers so I believe these bearista bears would creat many more sales than say keychains and the like. Even men would buy the bear as a gift for their child or better half as a present. I think if they keep thinking along those lines it can only help the situation.

With Starbucks prices, they need other sources of income. My new site specializing in Coffee Makers offers home brewed coffee in three minutes.

@ Meek - "I am a starbucks customer who does not buy coffee. "

Ummm..then you are not a customer. You are a loiterer.

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