Before the ink has dried on newspapers reporting the impending close of 600 Starbucks locations nationwide, news has surfaced that clothing retailer Steve & Barry's is preparing to file for bankruptcy. For many years, both the coffee giant and the clothing chain have been two of the most-discussed, high-growth companies. So what has gone wrong?
In the case of Starbucks, the general consensus among the business blogosphere is that the company, eager to appease investors, embarked on a path of overly-ambitious expansion. Shifting their focus away from the customer and toward the bottom line, Starbucks abandoned their thorough location-finding talents to map out several hundred new stores.
A new Starbucks cafe can have a tremendous impact on a local real estate market. The arrival of the white-green-and-brick facade in a neighborhood represents a "stamp-of-approval" for the neighborhood, and has nearly become synonymous with modern gentrification. This being the case, landlords began to make attractive deals with new storefronts, sometimes offering several months in free rent to a Starbucks willing to open its doors on their property.
Rushing quickly to fill these locations with baristas and customers alike, Starbucks began to take advantage of such real-estate perks. It appears such perks started to motivate location selections more than the high-quality demographic research the company is known for, as over 70% of the proposed store closings will be locations opened within the last two years.
As the markets suffer uneasy fluctuations, it also becomes difficult for landlords to continue such “sweetening” efforts for the coffee juggernaut, as well as for other large retailers.
Another such company is Steve & Barry’s. Though the retailer has experienced annual sales over $1 billion and solid performance in their newest stores, it still suffers from small margins due to their discounted pricing strategies. Their rapid expansion became dependent upon such real estate perks, which have all but frozen in the current market.
There are numerous ways out of the frying pan for Steve & Barry’s, including possible acquisitions. And Starbucks is only predicted to take a short-term media and investor relations hit from the news of the store closings. But still, the question remains: Is it possible to grow too fast? And when is aggressive expansion a bad idea?
Expansion is a bad idea when it is more opportunistic than strategic. That’s not to say that companies shouldn’t take advantage of opportunities they spot, as that would be counter to the nature of entrepreneurial business growth. What it does mean, however, is that they should approach any expansion with a careful and well-mapped out plan. Once the business has documented their vision, it should ask if it is pursuing growth in the best interest of the company, or whether it is growth only for the sake of growing.
Both Starbucks and Steve & Barry’s took advantage of market conditions to fuel expansions that were ultimately unsustainable.
From the entrepreneur’s perspective, growing “too fast” would seem like a great problem to have. But if the growth is more opportunitistic than strategic, it can be unsustainable and carry unforeseen risk.
Has your business experience rapid growth?
What were the pitfalls, if any, that you encountered in the process?