Starbucks pushes for 25% rent cut

Greensboro: Starbucks Corp, the world's largest coffee-shop operator, is pushing some US landlords for as much as a 25 per cent reduction in lease rates, taking advantage of a declining real estate market to save on rent.

Faith Hope Consolo, chairman of New York-based Prudential Douglas Elliman's retail leasing, marketing, and sales division, is generally advising about a dozen landlords to work with Starbucks after they received letters seeking rent reductions of 20 to 25 per cent. She hasn't seen the correspondence.

Separately, two other letters were confirmed by two property managers, who declined to be named because the negotiations are still under way.

"In this environment, what we've seen in general is the landlords and retailers really have to work together more closely to prevail," Consolo said in a Wednesday telephone interview. "We're talking a lot about tenant retention." Starbucks began rent-reduction efforts in January as part of a plan to trim overall expenses, according to Tara Darrow, a spokeswoman for the Seattle-based company. The same month, the company said it would close about 300 cafes this year and cut as many as 6,700 jobs after first-quarter profit plunged 69 per cent, hurt by an economy in which cost-conscious consumers cut back on premium coffee.

Starbucks is looking to trim labour, food, and other costs, and had cut $195 million (Dh716 million) through the first half of fiscal 2009. In April, the company said it was on pace to lower total costs by $500 million in the fiscal year that ends in September.

Darrow wouldn't confirm the size of the reduction the company is asking. She also wouldn't specify how many leases the company is trying to renegotiate or how many landlords have agreed to reductions. Starbucks isn't asking for a blanket rate reduction from the landlords it has approached, Darrow said.

Starbucks rose 68 cents, or five per cent, to $14.39 on Friday on the Nasdaq Stock Market. The shares have advanced 52 per cent this year.

"We're taking advantage of the opportunity in as many cases as we can," Darrow said. "We feel like it's a positive programme for us. Most of the landlords we've worked with have felt it is a mutually beneficial situation."

The rent-reduction programme covers the US stores operated by Starbucks, a number that totalled 7,035 as of March 29.