China, Starbucks Share Same Problems
Both suffer from late-stage growth obesity.
- Alexander Katsenelson (my older, wiser brother)
I had my TV service disconnected at home for awhile now as I don't want my kids to become TV-addicts. We reconnected it recently so we could watch the Olympics – I'm glad we did. The opening ceremony was incredible. It was a demonstration of Chinese might, but not through a communist-by-the-book parade of nuclear weapons and marching (expressionless) soldiers – this doesn't impress anyone. Not anymore.
No, the elegant, wonderfully choreographed performance by 15,000 people, the marvels of modern technology (a 500 feet LCD screen comes to mind here), virtually unlimited resources of the Chinese government and seven years of preparation created a spectacular event that will be hard for any nation to follow. I am sure Russia, the host of 2014 Olympic games, whose nationalistic ambitions have grown together with its oil revenues is going back to the drawing board on its opening ceremony.
So what do Starbucks (SBUX) and China have in common? A lot! Both got America hooked on consumption: one of fancy, expensive caffeinated liquids; the other on cheap foreign made goods. Both have defied the conventional wisdom – They grew faster and longer than common sense told us was possible. They also share another striking commonality: both are suffering from late stage growth obesity (LSGO).
The Starbucks Story
With the beautiful benefit of hindsight we know what happened to Starbucks – it grew too fast, opened too many stores, and sacrificed its own standards to meet unrealistic targets. The company first claimed that it only had a few hundred stores that it needed to close, and then the few hundred spilled into six hundred. Weak consumer spending will likely push Starbucks to re-examine its store count again, doubling or tripling the store closures.
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