February 27, 2008

Starbucks Cuts 600 Positions

February 22, 2008; Page B6

Starbucks Corp. is eliminating 600 jobs as part of an effort to revive the struggling coffee giant.

The Seattle company said that 220 people lost their jobs as part of its restructuring. The remaining 380 jobs are open positions that won't be filled. The cuts are happening in Starbucks' so-called field operations, or offices that support Starbucks cafes, and won't result in job losses at the retail stores. Nearly all of the jobs are based in the U.S. Starbucks employs about 170,000 people.

"We have to step up to the challenge of being strategic as well as nimble as our business evolves," Chairman and Chief Executive Howard Schultz said in an email to employees. The company also increased by two the number of regional divisions it has in the U.S., for a total of four.

In returning to the chief executive position last month, Mr. Schultz said the company's rapid growth had led to bureaucracy. Starbucks shares lost almost half their value last year as price increases and a weak economy slowed traffic at its U.S. locations, and a lack of appealing new products dulled demand.

A few days after his return, Mr. Schultz announced he had shuffled a handful of top management positions. This latest round of cuts doesn't reach into the executive level.

Since his return, Mr. Schultz has said he plans to close weak stores and slow the number of store openings in the U.S. as well as refocus the chain on coffee. He says he will release more details of his plans at the company's annual meeting next month. On Tuesday, Starbucks plans to close all of its company-operated stores in the U.S. from 5:30 p.m. to 9 p.m. local time to retrain 135,000 store workers, in part to teach them how to better make espresso drinks.

Mr. Schultz has indicated that, among other things, he plans to make better use of the Starbucks payment card, emphasize the company's expertise in coffee roasting and possibly create a new segment for Starbucks that would allow customers with lower incomes to try its products.

Of those who lost their jobs, about one-third worked at Starbucks headquarters in Seattle, and about two-thirds worked at other Starbucks field operations outside headquarters

February 26, 2008

Wal-Mart Sets India Plans, Aims to Back Local Players

Gaurav Raghuvanshi and Eric Bellman. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 21, 2008. pg. B.4

Wal-Mart Stores Inc. plans to open 10 to 15 large cash-and-carry stores in India in the next seven years, hoping to crack the booming retail market without angering the tiny mom-and-pop retailers and small middlemen that dominate the industry.

The world's largest retailer by sales says its wholesale joint venture with India's Bharti Enterprises Ltd. will employ about 5,000 people over that period after opening its first store this year. The stores will be 50,000 to 100,000 square feet and offer items ranging from fruit to footwear for sale to retailers, hotels, hospital and other businesses. Indian rules don't allow foreign retailers such as Wal-Mart to sell directly to consumers. They are, however, allowed to run wholesale operations and provide back-end support to Indian retailers.

Meanwhile, Wal-Mart's wholly owned subsidiary, British retailer Asda Group Ltd., unveiled a GBP 400 million ($779 million) expansion program that will involve opening as many as 22 stories and extending 12 existing outlets. The expansion will create more than 9,000 jobs this year, the company said.

In India, Wal-Mart is one of many international and local retailers with plans to invest billions to modernize India's retail industry and supply chains. They are hoping to carve out their own share of India's retail market, which is already valued at more than $300 billion but has until recently been dominated by millions of small family-run stores. German retailer Metro AG, the world's fourth-largest retailer in terms of sales, already has wholesale stores in Bangalore and Hyderabad and plans to open more in India. India's Reliance Industries Ltd. has opened more than 100 grocery stores in the past year. It plans to open thousands more, hoping to get the jump on the international competition.

The surge in interest in the sector has sparked protests by mom-and- pop store owners and the middlemen that supply them across the country. As it announced the outlines of its India plans yesterday, Wal-Mart said its arrival wouldn't hurt the small players in the industry. "Our goal is to work with India's existing supply-chain infrastructure and improve efficiency to minimize wastage and maximize value for farmers and manufacturers as well as retailers," Wal-Mart Vice Chairman Michael Duke said. "We can help cut the waste, not the middlemen who can play a very important part in the entire supply chain."

As it increases its ties with India, Wal-Mart said it is also looking to outsource some of its information-technology work to Indian companies. It didn't say which companies it plans to use. "As we deepen our relationship with India, it only made sense that we take advantage of the 24-hour development cycle that India offers," Mr. Duke said.

Separately, Bharti Enterprises Joint Managing Director Rajan Mittal told reporters the cash-and-carry joint venture with Wal-Mart hopes to open its first wholesale store by December, followed by a couple of more stores next year.

Starbucks Continues to Align Organization for Sustained Global Growth

Monday, Feb. 25 2008
Starbucks Continues to Align Organization for Sustained Global Growth

SEATTLE, Feb 25, 2008 (BUSINESS WIRE) -- With a focus on strategic global expansion and providing customers with the distinctive Starbucks Experience, Starbucks Coffee Company (NASDAQ:SBUX) today announced that former Starbucks executive Arthur Rubinfeld has returned to the Company in the role of president, Global Development. In this newly created position, Rubinfeld will be responsible for site selection, design and creative concepting for Starbucks stores worldwide.

"Arthur is a world-class business person, who helped the Company grow from 100 to 4,000 stores and was a key member of the leadership team," said Howard Schultz, chairman, president and ceo. "I know his leading-edge work in the area of retail design and architecture will be a tremendous asset as we transform Starbucks for the future."

Most recently, Rubinfeld served as executive vice president, Corporate Strategy and chief development officer at Potbelly Sandwich Works, a rapidly growing restaurant concept. In 2001, he founded AIRVISION, an advisory firm specializing in brand positioning, growth strategies and operational plans for clients, including adidas, Omaha Steaks, Oakley and Washington Mutual. Additionally, Rubinfeld served as Starbucks executive vice president for Store Development from 1992-2001 and is credited with building the world-class function for the Company.

"Arthur's past success, extensive experience, knowledge of the business and Starbucks culture, will provide the foundation and leadership we need to execute the Transformation Agenda and support our long-term success," said Schultz. "I am proud to have him as part of our senior leadership team, once again."

Prior to joining Starbucks in 1992, Rubinfeld was managing partner of Epsteen & Associates, practiced as a national NCARB-certified architect in New York, and authored the book, "Built for Growth - Expanding Your Business Around the Corner or Across the Globe," a tutorial on brand development, business model infrastructure, retail site selection and innovation.

About Starbucks

Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting the highest quality arabica coffee in the world. Today, with nearly 16,000 stores and more than 170,000 partners (employees) in 44 countries, Starbucks is the premiere roaster and retailer of specialty coffee in the world. Through our unwavering commitment to excellence and our guiding principles, we bring the unique Starbucks Experience to life for every customer through every cup. To share in the experience, please visit us in our stores or online at

SOURCE: Starbucks Coffee Company

Starbucks Media Relations
Brandon Borrman, 206-318-7100
Starbucks Investor Relations
JoAnn DeGrande, 206-318-7893 Business Wire 2008

Studios Are Trying to Stop DVDs From Fading to Black

February 25, 2008
Studios Are Trying to Stop DVDs From Fading to Black
A winner has finally been declared in Hollywood’s high-definition DVD war. So why isn’t there more cheering?

In the 1980s, the triumph of VHS over Betamax helped develop the lucrative home entertainment market. DVDs, introduced in the 1990s, turned into an even bigger gold mine, accounting for roughly 60 percent of studio profits in recent years, analysts say. The entertainment giants have positioned high-definition DVDs as yet another blockbuster business.

But the victory of Sony’s new Blu-ray high-definition disc over a rival format, Toshiba’s HD DVD, masks a problem facing the studios: the overall decline of the DVD market. Domestic DVD sales fell 3.2 percent last year to $15.9 billion, according to Adams Media Research, the first annual drop in the medium’s history. Adams projects another decline in 2008, to $15.4 billion, and a similar dip for 2009.

So instead of celebrating the Blu-ray format — which remains a nascent business — the studios are scrambling to introduce an array of initiatives aimed at propping up the broader market. Some efforts, like the addition of new interactive features and changes in how DVDs are packaged and promoted, are intended to prevent further market erosion while nurturing Blu-ray.

But media companies are also introducing technology that they hope will solve the more difficult tasks of generating growth and delaying the obsolescence of DVD altogether.

DVD sales are sagging for various reasons, including a flooded marketplace and competition for leisure time. But the Internet is perhaps the biggest enemy.

Technology companies have watered down the DVD market by aggressively pushing Internet downloads. Apple’s iTunes now offers downloads of 500 movies and last month started renting titles like “Spider-Man 3.? Meanwhile, telecommunications providers like Time Warner and Comcast are pushing their faster broadband lines by promoting them as capable of delivering fast downloads.

Movie studios are fighting back by taking a page from the Internet playbook. Indeed, the centerpiece of the market rejuvenation effort is something 20th Century Fox calls “digital copy.? Fox DVDs, starting last month, now come with an additional disc holding a digital file of the title. Consumers can download the file to a computer in about five minutes — far less time than via the Internet — and then watch the movie there or transfer it to their iPod.

“This puts the DVD at the center of the digital revolution and returns the business to a growth trajectory,? said Mike Dunn, the president of 20th Century Fox Home Entertainment. Sony Pictures Entertainment, Universal Studios, Walt Disney and Warner Brothers are all pursuing their own versions of the idea.

Most technology consultants, while not as optimistic about the DVD’s future as Mr. Dunn, are greeting studio efforts with enthusiasm. Tom Adams, the founder of Adams Media Research, said the packaging of digital files with standard DVDs “has the real potential to steal the thunder from the Internet delivery of movies.?

But John Freeman, an industry analyst, sees the effort as a stall tactic. Although digital copies are “a step forward,? he said, that step is tantamount to Hollywood admitting that its lucrative hard-goods business is growing obsolete. Today, digital files on discs; tomorrow, mass downloading straight from the Internet.

Troubles big and small started buffeting the DVD business in 2005. First, overall sales of television shows on disc started to slip as releases lost their freshness — New to DVD! “Murder She Wrote: The Complete Eighth Season? — and consumers realized they were devoting a lot of living room space to bulky boxed sets they never watched.

Next, prices started to plummet as overall demand weakened and retailers and grocery stores turned to DVDs as loss leaders. DVDs sold for an average retail price of $15.01 last year, compared with $21.95 in 2000, according to Adams.

“Wal-Mart has indicated it is getting bored with older library titles,? said Stephen Prough, the co-founder of Salem Partners, a small investment bank that specializes in film catalogs. “When there is little to no consumer demand at a $6 price point, you’ve got problems.?

And a lingering battle among various participants in DVD marketing — hardware makers, studios and retailers — over which of two competing high-definition technologies would replace standard DVDs left consumers in limbo, analysts say. Last week, Sony’s Blu-ray finally won the battle after Toshiba threw in the towel on HD DVD.

Media companies, aware of investor concerns about the future of their cash cow, say the problems are overblown. Their position in part: DVDs will continue as a giant profit center because the Internet — despite the “marketing hocus pocus? of the telecommunications industry, in the words of one Fox executive — will remain too slow for widespread downloading to catch on for the foreseeable future.

International DVD sales are still growing, studios add, and some players do not concede that domestic growth is over. Bob Chapek, president of the home entertainment unit of Walt Disney, said that blockbusters like “Pirates of the Caribbean: At World’s End? achieve large numbers even if lesser titles are struggling. He said sales of Blu-ray discs would contribute to “a vibrant growth pattern? for the category by decade’s end.

“There is nobody worried about the consumer suddenly fleeing,? said Ronald J. Sanders, president of Warner Home Video.

Blu-ray DVDs, which sell for a 25 percent premium, will without question restore momentum to the DVD market, but there is disagreement over how much and how soon. “There is still plenty of concern at Sony, Best Buy and Blockbuster that this isn’t going to achieve the same level of success that the DVD has,? said Robert Heiblim, an industry consultant with RH Associates.

Microsoft said this weekend it would stop making HD DVD players for its Xbox 360 game system. Toshiba, reflecting on its failure with HD DVD, said the industry might be overestimating interest in a new format. Jodi Sally, Toshiba America’s vice president for DVD marketing, said consumers en masse do not feel a nagging need to upgrade.

“Our biggest competitor was that consumers seem to be satisfied? with DVDs, she said.

Studio executives dismiss that view as sour grapes, pointing to their own research. Fox, for instance, estimates that sales of Blu-ray discs will soar to nearly $1 billion in 2008, from $170 million last year. “Blu-ray growth will more than replace losses from the mature business,? said Mr. Chapek of Disney.

Disney is leaving nothing to chance, mounting an aggressive campaign to persuade consumers to upgrade to Blu-ray. Among its efforts: a Blu-ray exhibit, built to look like the Sleeping Beauty Castle at Disneyland, that tours shopping malls; Blu-ray previews on its DVDs; and a $10 rebate when consumers buy certain Blu-ray movies.

Still, the studios are hedging their bets. Home video executives are racing to “refresh? the traditional DVD to raise sales.

Some, like Warner Brothers, are getting results through more marketing. Mr. Sanders said the studio was releasing more movies on DVD and on video-on-demand services at the same time; typically the two are separated to prevent undercutting either revenue stream. “By pairing up the marketing, V.O.D. and DVD both do a lot better,? he said.

Sony is trying to milk obscure titles from its library that it previously considered unsustainable on DVD, said David Bishop, president of Sony’s home entertainment unit. Last month, it said it would make certain niche movies available to consumers through Hewlett-Packard’s manufactured-on-demand service. “It allows us to sell some of the deeper catalog that retailers would not normally carry,? said Mr. Bishop.

Over-the-top packaging stunts are also helping buoy sales. “We are trying harder to create very handsome, collectible packaging that retailers are proud to put on their shelves,? said Ken Ross, general manager of CBS Home Entertainment. CBS and its distribution partner, Paramount, recently had success with a 34-disc set, priced at $199, of the entire run of “I Love Lucy.?

Mr. Ross sees no weakness in TV shows on DVD — CBS will release 15 percent more titles this year than last — but he said the company was trying to make exclusive agreements with retailers, like a recent deal with Borders for Showtime titles.

“This business certainly isn’t as easy as it used to be,? he said.

February 24, 2008

Motorola may drastically change its business

Motorola May Spin Off Handset Unit; Icahn Looms
Sara Silver. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 1, 2008. pg. A.1

Abstract (Summary)
Carving off handsets would leave Motorola with its home and networks division, which makes TV set-top boxes and telecommunications-network gear, as well as its enterprise and government business which makes public-safety radios and hand-held devices for workers on the road. Mr. Gelblum thought a tie-up could make sense for big Korean handset makers Samsung Electronics Co. or LG Electronics to better compete with market leader Nokia Corp. Both already have major U.S. presences.

Motorola Inc., facing pressure from activist shareholder Carl Icahn, said it may spin off or sell its flagship handset division.

The decision is a stunning setback for an American technology icon and offers a parable for other industries. Motorola essentially created mobile telecommunications with the earliest mass-market hand- held radios. But it repeatedly stumbled in keeping up with consumer demand for innovation, while foreign competitors stole away market share.

Motorola produced a series of hits that changed the industry with models such as the StarTAC, an early flip phone from the 1990s, and the ultraslim Razr in this decade. But the company has long struggled to fill in the gaps between hits, and in the past year, Motorola's market share has been cut in half, to its lowest levels since 2001. Last week the company said it couldn't predict when it would halt its market-share slide, sending its stock plunging 19%.

Yesterday's news of a possible spinoff or sell came after the close of regular market hours, and pushed Motorola shares up more than 10% in after-hours trading.

Motorola's decision comes as the mobile-device market -- which shipped 1.1 billion units globally last year -- is undergoing sweeping change. Consumers are demanding easy-to-use devices with Internet and multimedia capabilities. Mobile use of the Web is expected to grow even faster in coming years as carriers increase the bandwidth of their cellphone networks by adding new radio spectrum.

Manufacturers are under heightened pressure to come up with sleek products, particularly after Apple Inc. entered the market last year with its touch-screen iPhone. The latest phones come ready to surf the Internet at high speed and feature software to download driving directions, watch video, share photos with friends and connect to Web- based social networks. New players such as navigation specialist Garmin International Inc. are entering what's already a crowded market.

Motorola has a new chief executive, Greg Brown, who took over from Ed Zander at the start of this year. Mr. Brown must figure out how to deal with Mr. Icahn, who has been pushing for a breakup of the company. The investor said yesterday he plans to mount a new proxy campaign to win four or five seats on the company's 13-member board at the annual shareholder meeting this spring. Mr. Icahn unsuccessfully sought a board seat last year.

Last night, Mr. Icahn said Motorola's announcement wouldn't change his intention to get board seats. He said he has been buying more Motorola shares lately, but wouldn't quantify his current holding. As of Sept. 30, he owned 3.3% of Motorola's stock, according to FactSet Research Systems Inc.

"We think they are moving in the right direction, but they still have a lot of moving to do," Mr. Icahn said, noting that he wants new management at the handset division.

Motorola's handset business accounts for about half of the company's annual sales of $36 billion. Carving off handsets would leave Motorola with its home and networks division, which makes TV set-top boxes and telecommunications-network gear, as well as its enterprise and government business which makes public-safety radios and hand-held devices for workers on the road.

Mr. Icahn argues that these two businesses alone are worth more than Motorola's market capitalization of around $26 billion. He thinks the cellphone division could fetch $20 billion and leave shareholders with a more profitable company.

Don McLellan, senior vice president of corporate strategy at Motorola, agreed that the "current stock price dramatically undervalues" the mobile-devices division. He said Motorola will take an "open-minded fresh look" at its handset business. While a sale isn't "preordained," he said, carving out the business "could well drive the recovery that we've been talking about."

Motorola itself "is not for sale," Mr. McLellan emphasized. Motorola hasn't held discussions with potential buyers so far, people familiar with the matter said.

Analysts said Motorola might get a better deal by teaming up with an Asian company instead of selling its handset division outright when the market is weak. "To partner, where Motorola has skin in the game -- that would make the most sense," said J.P. Morgan analyst Ehud Gelblum. Mr. Gelblum thought a tie-up could make sense for big Korean handset makers Samsung Electronics Co. or LG Electronics to better compete with market leader Nokia Corp. Both already have major U.S. presences. He said Japanese companies that have had mixed success outside of their home market also might be interested.

The business's current problems are sure to be an issue for prospective buyers. Motorola has warned that handset sales would drop more than the 15% that is normal for the post-holiday period. It suffers from a weak lineup of multimedia phones. Last week, Motorola announced it would turn to Qualcomm Inc. for chips to speed the development of such phones, but said the products won't be ready until late this year at the earliest.

The market is likely to see further upheaval as Google Inc. works on new software, dubbed "Android," to speed the development of mass- market cellphones that can easily access the Internet. Motorola is among the handset makers that have agreed to carry the Google operating system on their phones.

Private-equity firms would be natural suitors for Motorola's handset unit, but with credit markets at a near standstill, they would have trouble lining up financing. Another challenge is determining whether a buyer would also acquire the Motorola name or license it.

Some companies might want to join up with Motorola's handset business as a quick way to gain scale in the U.S. Potential partners include Chinese telecom equipment makers Huawei Technologies Co. and ZTE, both of which have been underselling Western competitors in network equipment. The Chinese companies' cellphones, including ones offering high-speed Internet access, are selling well in markets like India and Australia. Both have signed deals in Europe.