Starbuck is well known for being the largest coffee shop in the world. While it is best known for its Starbucks brand, they also own some other businesses as well. One business that they own is Teavana, which is a large chain of tea shoppes and cafes located all over the United States. Starbucks initially bought the chain of cafes in 2012 for a $620 million price. However, five years later it appears that the company is regretting that decision (https://www.fool.com/investing/2017/07/30/why-starbucks-is-closing-all-its-teavana-stores.aspx).
Starbuck has recently announced that they plan to close the entire chain of Teavana locations. Since they bought the chain, the company has expanded Teavana modestly to 379 locations. The reason for the closure of the chain has been overall under-performance. According to the company’s most recent filing, the Teavana chain has not made money in recent years. The company even had to take a $100 million impairment in the last quarter to offset some of the costs associated with the chain.
The overall effect of the closure could be significant in the short-term, but will likely help to make Starbucks more profitable going forward. They will likely have to spend a lot of money to buy out their existing leases, but should find that it was a good financial decision in the future.
Overall, the main reason for the poor performance of the chain is due to the locations of the cafes. The company often chose to open new locations inside of major indoor malls. They company was then impacted by the fact that overall traffic in malls is much lower due to the fact that more and more people are doing their shopping online. While Starbucks has locations for their traditional coffee cafes in malls, they tend to have a lot more locations outside of malls in major foot and driving traffic zones.
While Starbucks is closing the Teavana chain, it does not appear that they are abandoning tea altogether. The company is investing heavily in their new line of tea products that have been rolled out across all their cafes. While this may be a good long-term decision, it does not appear that investors like the idea. Shares of Starbucks were down 9% shortly after the announcement.