Starbucks says empty storefronts are leading to lower rents

Bad news for shopping centers is turning out to be welcome news for some retail tenants.

Starbucks Corp. Chairman Howard Schultz said he sees a blessing in all the empty storefronts across the United States.

Facing a crush of vacancies—and the rise of e-commerce—retail landlords are beginning to cut rents, the executive said in a memo. That stands to benefit the world’s largest coffee chain, which has more than 14,000 U.S. locations.

“Over the last few weeks, I have been in a number of U.S. cities and observed firsthand the abundance of empty storefronts across the country, in prime A1 locations,” Schultz said in the memo, which was released by Starbucks. “We are at a major inflection point as landlords across the country will be forced (sooner than later) to permanently lower rent rates to adjust to the ‘new norm.’”

Schultz, who retired as Starbucks’ chief executive last year, blames the rash of empty stores on lower customer traffic and the high cost of leases signed in the past three to seven years. That’s left plenty of room for Starbucks to expand its U.S. restaurants, including its newer Reserve and Princi locations.

The 64-year-old made the pronouncement ahead of Starbucks opening its first Reserve store—a more upscale offshoot of the coffee chain. The cafe, which makes it debut in Seattle on Tuesday, will include an Italian-style bakery featuring its Princi brand.

Starbucks is looking to new locations to help fuel sales growth, which has slowed recently. Globally, comparable sales rose just 2 percent last quarter, missing analysts’ estimates. The chain blamed its holiday merchandise for hurting the domestic business.

The real estate upheaval hasn’t been all good news for Starbucks. The company shut down its chain of almost 400 Teavana stores, in part because many were located in poorly trafficked shopping malls. Indianapolis-based mall giant Simon Property Group sued Starbucks in an unusual effort to stop the closures, which involved dozens of long-term leases in Simon malls.  The two sides settled the legal dispute in January.

Starbucks also is facing competition from other coffee shops and fast-casual chains that are trying to snap up cheap sites.

“We should be patient and disciplined in our approach,” Schultz said. “This is not going to be a cyclical change in our occupancy expenses, but a permanent lowering of the cost of our real estate.”