Moves by CVS, Target, Starbucks Paint Conflicted Retail Portrait
It's been a topsy-turvy week for retail, with mergers and closures driven by segmentation and globalization suggesting broad turbulence.
Despite hitting a record high yesterday on the stock market, Starbucks today announced the closure of its 23 La Boulange cafes by the end of September. The company was tight-lipped about the decision, only saying that operating the bakery chain (and two related manufacturing plants) was "not sustainable for the company's long-term growth." Starbucks, which picked up La Boulange in 2012 for $100M, promised to ease the pain of La Boulange employees, saying that some would be employed by the company's coffeehouses.
Forbes explains the decision bluntly: it's about money, stupid. La Boulange is small and clustered in San Francisco and, at the end of day, doesn't offer a singular distinguishing product to make the investment worth it for the Seattle coffee king. But wouldn't the veneer, however thin, of a chic French cafe be attractive to Starbucks as it continues to expand its food selection (some La Boulange menu items will be folded into the coffee-centric mothership)? Not unless the subsidiary could make up a sizable chunk of Starbucks' roughly $20B bottom line.
The bottom line was the reason behind CVS' $1.9B purchase of Target's pharmacy and clinic businesses. As one year of blockbuster mergers continues into another, size matters. (See also: the savvy $3.2B move by Hudson's Bay to acquire the German Galeria Kaufhof as it grows in Europe.) And a mass-market brand like Target will prove more inviting to suitors than boutique-minded targets like La Boulange, despite all talk about the Balkanization of consumer tastes. The deal is also another blow to Target, which recently skulked away from Canada. And it again proves the eternally fickle nature of retail. (Like Starbucks, Target will continue to sharpen its focus on food.)
This week in retail headlines shows that the industry mandates are to specialize so long as the niche has room to grow...with speed and ease (and probably outside of mall anchor positions). And to expand, but with a mind on a consistent antibiotic, bread and butter.
