The Starbucks Factor: Telltale Economics from Your Everyday Life

While economists study corporate stock prices, dollar fluctuations, and bond yields in the hope of gauging the nation’s financial wellbeing, perhaps the simple fact that Starbucks (http://www NULL.starbucks NULL.com) is pulling back and closing stores tells us more about the true state of our economy (http://www NULL.singlemindedwomen NULL.com/womensmoney/461/what-goes-down-must-come-up!-real-economic-indicators NULL.html).

Last week retired Texas Senator Phil Gramm, presidential candidate John McCain’s co-chair and his most senior economic adviser, made a terrible slip-up when he referred to the United States’ economic downturn as a mental (read imaginary) state of affairs, as opposed to an actual recession.

Academically, Gramm’s point bears some merit. Much of what we see in economic upswings and downswings is indeed psychological. The stock markets prove that everyday as they go up and down based on a never-ending game of speculation.

But, it was a boneheaded comment when your working for a candidate who is about to speak to autoworkers and others in Michigan, where layoffs and unemployment rates lead the country, to them that he “feels their pain.”

While speculators are trying to read the tea leaves of the first quarter of 2009, hard hit Americans are trying to pull together a handful of quarters to buy a cup of coffee at Starbucks.

And that brings us to what I call the Starbucks Factor. Last week this famous coffee and tea purveyor, which, in the past decade, has been opening new locations faster than banks today are foreclosing on delinquent mortgages, suddenly announced that they will close 600 stores.

Talk about catching your attention.

Since the dawn of the new millennium. there are certain things we can count on:

1. George the Second will mangle the Queen’s English at least once a day.

2. Healthcare (http://www NULL.singlemindedwomen NULL.com/womensmoney/446/household-incomeand-health-outcomes NULL.html) costs will rise on a weekly basis; and

3. Starbucks will open thirty or more new caffeine emporiums before the end of the month.

When Starbucks goes into reverse, Senator Gramm’s theory—that a bad economy is just in our imaginations—goes in the grinder.

So I went looking for another indicator of a weak economy, some sort of “corporate canary in the cave,” if you will. You know, not dead yet, but certainly unsteady in these shaky times.

As it turns out, rather than calling this piece the “Starbucks Factor,” you could call it the “Kinko’s Syndrome” although that term would be outdated, since FedEx announced last month that they were dropping the Kinko’s name (since 2004 officially the brand has been known as FedEx Kinko’s) and renaming it FedEx Office.

Well, whatever you want to call it, I was in two of their units this past week, and they were as quiet as any tomb.

Not a good economic indicator.

One of those visits was a Monday morning at 10:30, a time when would be entrepreneurs are usually photocopying, and graphic designing their way to the top. However, there were no ambitious future millionaires to be found that day, just me printing off a couple of 4×6 photo prints of my recently deceased dog, and a woman printing up some church brochures.

I’ve seen this situation before. It was back in 1992, when Bill Clinton was running around the country with a message taped to the inside of his jacket that said, it’s “the economy, stupid.”

Well, in fairness, a couple of slow business days at Kinko’s—I mean FedEx Office—does not an economic indicator make. So I looked up the market news on FedEx Office (http://money NULL.cnn NULL.com/index NULL.html) and it was not good. In early June, they announced they were taking an $891 million pretax write down due to “a decline in the current fair value of the FedEx Office unit in light of current economic conditions, the unit’s recent and forecasted performance, and the decision to reduce the rate of store expansion…”

That’s MBA-speak for “There’s no one here except some nut making a couple of photo prints of his mutt, and some church lady getting ready for Wednesday night’s prayer service.”

As for Starbucks, (http://www NULL.nytimes NULL.com/2008/07/02/business/02sbux NULL.html?scp=2&sq=Starbucks+closing+stores&st=nyt) the $3.50 latte business (along with lots of other more exotic beverages) has slowed down as well. To the average consumer, the old $1.25 cup of coffee is looking better every day—and that’s not good news to Starbucks executives, who were no doubt planning to expand to the North Pole, too, so that all those half-frozen elves could finally get the vanilla bean frappuccino they’ve been dreaming about.

Phil Gramm, I suspect, doesn’t pop into many FedEx Office locations. And if he wants a Starbucks coffee, odds are he sends a staffer to fetch him one. But if he was more like you and me, just regular people, he might have noticed the sure signs of tough times.

It’s not what’s on people’s minds, its what’s in their pockets. And these days, after they pay to fill up their car, and buy the groceries for dinner, those few extra Starbucks’ dollars are just not there anymore.

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