Starbucks (SBUX) Goes Into Litigation After Store Closings

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The turnaround at Starbucks (SBUX) has been tough since Howard Schultz returned as CEO in January. The stock is down nearly 50% year-to-date as the company returns it focus to coffee, rearranges it scheduling system to give full-time employees a greater presence, and battles lower cost providers such as McDonald’s (MCD).

Now, it has some lawsuits to deal with just for fun. As the company seeks to close 600 U.S. stores over the next few months, The Wall Street Journal reports that "a handful of property owners and developers have filed lawsuits alleging that the Seattle coffee giant owes them money for rent or other expenses on properties where the company has shut down a store or decided not to open one after entering a lease. At least seven lawsuits have been filed against Starbucks since last year, but the anger isn’t limited just to litigants. . . Some landlords contend Starbucks is paying rent late or darkening stores before specifying the closure dates to make the landlords wary of a fight and to pressure them into letting the company out of leases for a price they deem too low."

It’s hard to know what to make of the allegations, which Starbucks has denied. It may just be that commercial property owners are feeling especially feisty because of the state of the real estate market and economy. It isn’t like other chains are lining up to take the vacated spaces and in many cases the developers spent a lot of money customizing interiors to Starbucks’ specifications. Starbucks has already said it plans to spend between $120 million and $140 million on lease terminations over the next few months — a sum equal to more than 1.5% of the company’s market capitalization for the privilege of not operating stores in certain locations.

But long-term, Starbucks appears to be making the tough moves it needs to be a great performer again. In a different market, rumors of a buyout would likely be swirling around its beaten down share price.

Zac Bissonnette