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Starbucks, Inside Out

By Selena Maranjian - Updated Apr 5, 2017 at 7:54PM

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You can learn an amazing amount about a company by reading.

I'm a Starbucks (NASDAQ:SBUX) shareholder, one who bought her shares just about a year ago and is now down some 60% on them.

When our stocks fall so much, we tend to step back and question whether we should hang on. I'd been wondering about Starbucks, but I also told myself that at least part of its downfall has been due to the economy instead of anything the company is doing. When we're in a recession, $4 coffees and pastries don't seem like necessities.

And sure enough, Starbucks isn't the only provider of high-end treats that's been suffering lately. Shares of Tiffany (NYSE:TIF) have fallen by about 50% so far this year, while Coach (NYSE:COH) is down 34%, and Nordstrom (NYSE:JWN) is off 68%. Starbucks competitor Peet's Coffee & Tea (NASDAQ:PEET) is down about 24%.

Given the pessimistic outlook for luxurious brands in the near future, I turned to a book and a website to help me decide whether I should sell or hold on.

The book
First, I read Michael Gates Gill's book, How Starbucks Saved My Life. In it, a laid-off advertising executive, desperately trying to make ends meet, ends up working at Starbucks -- and loving it. I found the book honest and inspiring, both about the resilience of the human spirit and about the good intentions a company can have.

I learned a bunch of interesting things about how Starbucks is run. For instance, the company expects employees (called "partners" and given benefits such as stock and health insurance -- even if they're only part-time) to "connect" with customers (called "guests"), by making conversation and trying to eventually learn their names. Secret shoppers are regularly sent to stores, to see how the partners are treating their guests.

I walked away impressed with the company and its ideals. The company's focus on connecting with its customers is encouraging -- it can be enough to keep many folks coming back, even in hard times.

The website
However, in scanning the Web for comments about the book, I ended up at the starbucksgossip.typepad.com blog, where I found a host of current insights into the company, following its not-so-pretty quarterly earnings report.

For example:

  • Many bitter, cynical employees posting on the blog say they're being overworked lately, because of cost-cutting at the company.
  • Store managers are reportedly being allocated less "non-coverage time," which is time they're not working behind the counter, when they tidy up the store, manage schedules, and tend to other details.
  • Employees are worried about keeping their jobs because they're apparently being asked to do more work in the same amount of time and are being held to the same standards as before.

Altogether, the site left me troubled. Contented baristas are a key component for Starbucks to deliver the service that its customers expect.

A verdict
I like Starbucks' focus on customers. That trait that has helped other companies, such as Amazon.com (NASDAQ:AMZN), prosper, as they react to what customers buy and suggest other merchandise they may like. Even McDonald's (NYSE:MCD) is customer-centric -- it has designed its menu to meet consumer demands, such as some healthier fare, higher-quality coffees, and low prices. Starbucks is also innovative. It frequently introduces new offerings and retires ones that get less love. Innovation, including a willingness to move in new directions, has served many successful companies well.

But if the blog is representative of many employees' feelings, then Starbucks is not effectively getting the rationale for its strategies across to its workers. If it has no choice but to make working conditions tougher right now, and it conveys that message successfully, then more workers might give it the benefit of the doubt. In the meantime, though, customers are being served and the economy is likely to recover -- eventually -- and when it does, it will bring with it more dollars for fancy drinks. So I'm not freaking out.

If I rank my holdings by my confidence in the company, Starbucks is not near the top, so I may still end up selling when I want to buy another stock. But for now, I'm holding on.

What should you do? Well, in times like these, some folks don't engage in much deliberation and simply sell, in a panic -- but that's not a sound approach. Whatever you do, don't be rash. But if you've decided you want to sell, and you're looking for some promising, undervalued companies, I invite you to test-drive -- free for 30 days -- our Motley Fool Inside Value newsletter service.

See what my colleagues think:

Longtime Fool contributor Selena Maranjian owns shares of Starbucks, 3M, General Electric, and McDonald's. Sotheby's is a Motley Fool Hidden Gems pick. Starbucks and 3M are Motley Fool Inside Value picks. Starbucks, Coach, and Amazon.com are Motley Fool Stock Advisor picks. The Fool owns shares of Starbucks. Try our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.

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Stocks Mentioned

Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$84.80 (-1.07%) $0.92
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$260.08 (1.28%) $3.28
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$137.77 (-1.18%) $-1.64
Tiffany & Co. Stock Quote
Tiffany & Co.
TIF
Nordstrom, Inc. Stock Quote
Nordstrom, Inc.
JWN
$21.83 (-8.27%) $-1.97
Tapestry, Inc. Stock Quote
Tapestry, Inc.
TPR
$33.27 (-3.30%) $-1.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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