The Starbucks E-Commerce Mystery

The company that leveraged a single Seattle coffee shop into latte at every corner announced last week that it would launch a “multi-billion-dollar” Internet venture by the end of this quarter. Starbucks, however, declined to specify what this new e-commerce venture would entail, leaving many industry observers guessing. Donuts, maybe?

Starbucks chairman Howard Schultz said in an earnings report conference call that the chain’s customers had the kind of “eyeballs” Internet companies seek: young, wired to the Internet and with plenty of cash. What Schultz, who sits on the boards of eBay and Drugstore.com wouldn’t say was what the Internet venture would actually sell. He did say, however, that it would not be coffee-related.

Company Earnings Up

Thursday’s conference call was timed with Starbuck’s second quarter earnings report, which showed a 29-percent increase — in line with analysts’ expectations. Starbucks’ second quarter revenues also rose at the same clip, from US$ 295 to $376 million.

What remains a mystery today is what product or products Starbucks will try to sell. Will the coffee retailer try to elbow its way into a crowded field of book and music retailers, or will he simply buy up an existing on-line store, and slap the Starbucks brand name on the web page?

Build It or Buy It? Few Clues

The only clue Schultz gave to his business plan was that promotion and marketing costs for a new e-commerce site would be dramatically lower than with other start-ups because Starbucks can use its 2,200 coffee shops as promotional sites.

Schultz said he would “aggressively build an undisputed leadership position” with his to-be-named-later product. He did allow that Starbucks might not build its e-commerce entry from the ground up, but instead would invest in or buy an on-line business.

Neither the earnings report or Schultz’ internet tease seemed to overly impress investors. Shares of Starbucks immediately rose to just over $33 per share Thursday after the report was released, then settled down slightly by Friday’s market close at $32. The company’s stock has climbed from just over $14 a share last fall to trade in the low 30’s throughout the early spring.

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