Starbucks (SBUX - Free Report) has decided to close all 379 stores of its Teavana chain over the coming year. Shares of Starbucks were falling 9% in morning trading on Friday.
CEO Kevin Johnson cited declining foot traffic in malls as the reason for the closure, which are the main location for Teavana stores. “We felt it was an appropriate time to take the decision and begin shutting down those stores,” he said.
The coffee giant acquired the U.S. tea chain in 2012 for $620 million, when then-CEO Howard Schultz cited the expanding tea market as an appealing place for growth. However, Starbucks reported disappointing revenue and comparable sales growth on Thursday in its third quarter earnings report with the Teavana chain partially to blame.
“Following a strategic review of the Teavana store business, the company concluded that despite efforts to reverse the trend through creative merchandising and new store designs, the underperformance was likely to continue,” Starbucks said in a press release.
The popular tea retailer DavidsTea (DTEA - Free Report) is up 9% in morning trading following Teavana closures. The Canadian company has come out strong since its IPO two years ago, with a total of 232 stores in the U.S. and Canada.
While DavidsTea does have mall-based locations, the company doesn’t restrict itself like Teavana does. This versatile strategy may have helped the company increase its sales by 9.4% during its first quarter of 2017.
Teavana has also had little success competing with Argo Tea for the last few years. Since 2003, when the company opened its first store in Chicago, Argo Tea has operated dozens of tea cafes across the U.S. When Starbucks bought Teavana, the company planned to open similar tea bars across the country.
While Argo Tea initially worried, Starbucks’ experiment failed. It opened its first of five Teavana tea bars in 2013. However, by early 2016, Starbucks gave up on developing its smaller brand stores, deciding to focus its tea products into its existing Starbucks locations.
The Teavana store closures follow news that Starbucks will purchase the remaining 50% stake in its East China joint venture for about $1.3 billion. The company is committed to operating 5,000 Starbucks stores in Mainland China by 2021, cementing Starbucks’ future as a mainly coffee-based business.
Most Teavana stores will close by spring 2018. Starbucks will continue to sell Teavana drinks in its Starbucks stores as well as bottled Teavana drinks in grocery stores. The 3,300 employees affected by the closures have been encouraged to apply for positions at Starbucks stores.
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