How should Starbucks decide which of its stores to close?

Starbucks Corporation (NASDAQ: SBUX) announced in late 2025 that it would be closing approximately 400 underperforming U.S. coffeehouse locations as part of a broader “Back to Starbucks” restructuring plan led by CEO Brian Niccol. The $1 billion initiative also eliminated around 900 corporate positions. By early 2026, Starbucks had already closed dozens of stores across New York City, Los Angeles, Chicago, and other major metro areas. Niccol explained that the closures focused on locations where Starbucks “doesn’t see a path to financial performance.”

But how should a company like Starbucks actually decide which stores to close? Looking at an individual store’s bottom-line operating income can be misleading and can even point in the wrong direction. In managerial accounting, the right approach is to identify relevant costs: specifically, the contribution margin the store generates and the fixed costs that would actually be avoided if the store were closed. Costs like corporate headquarters overhead, regional leadership, and national advertising would continue even if a single store closed, so those costs are not relevant to the decision.

In a keep-or-drop decision, managers compare the contribution margin lost if the segment is discontinued against the avoidable fixed costs that would disappear. If the lost contribution margin is greater than the avoidable fixed costs, the segment should be kept (even if a full-cost income statement makes it look unprofitable). If the avoidable fixed costs are greater than the contribution margin, closing the segment is the right call.

View a quick tutorial video about keep-or-drop decisions and then answer the following questions.

Discussion Questions

1. Why might a Starbucks store show an operating loss on its income statement but still be the right store to keep open?
2. What types of costs would most likely be avoidable if Starbucks closes a particular store, and what types would continue even after the closure?
3. How might corporate overhead (headquarters costs, IT systems, national advertising) affect the reported profitability of an individual store, and why is that important to consider in a keep-or-drop decision?
4. Beyond pure financial analysis, what qualitative factors should Starbucks weigh before closing a store? Consider things like employee morale, customer loyalty, long-term market presence, and unionization activity.
5. Starbucks cited stores “unable to meet brand standards” as one reason for closures. How should a company balance brand and strategic factors against short-term financial considerations when making discontinue decisions?