Starbucks' Schultz on being big in Japan


Howard Schultz (right) celebrates selling stock in Japan with his Japanese partners and the head of the Osaka exchange

By Alex Frew McMillan CNN Hong Kong

TOKYO, Japan (CNN) -- Java giant Starbucks opened its first overseas store in Tokyo in 1996. On Wednesday, Starbucks Coffee Japan became the first overseas operation of the Seattle chain to sell stock to the public. It whipped up 14 billion yen with its initial public offering.

Starbucks' Chairman and Chief Global Strategist, Howard Schultz, says he wants the chain to build out to 20,000 stores from 4,600 now before he leaves.

In an exclusive interview, he explained Starbucks' plan to cover the world to CNN's Alex Frew McMillan.

CNN: How big a deal is it for Starbucks to sell stock overseas for the first time?

Schultz: This clearly is a significant milestone, when you consider that it's only been five years since we opened our first store in Japan.

It's quite an accomplishment, especially considering the times we're in and capital markets have been struggling. This week we're celebrating our 300th store in Japan, so these are the early days of growth for Japan.

CNN: The stock jumped as much as 30 percent, to a price-earnings ratio of 80. Is it too expensive?

Schultz: The market decides for itself, and the market decided today that Starbucks is fairly priced. [It ended the day up 9 percent]. The support from the investment community, and the volume, was significant.

CNN: Still, one brokerage picked up coverage of Starbucks Japan with a sell recommendation.

Schultz: There were cynics when we went public in America. When we went public in June of 1992, the value was $200 million after the IPO. The value of the company in the U.S. today is $6 billion.

Five years ago, when we came to Japan, there were many cynics that said the Starbucks brand and image and what we intend to do would not translate. I don't know who put the sell order on or why. Our business is to satisfy the customer.

CNN: Where do you go from here in Japan?

Schultz: We intend to have at least 500 stores by 2004. It's one of the best markets. Store volumes are more than twice that of the U.S [per store]. The profitability and the economics of the business here are very strong.

The stores are as strong in the secondary markets as they have been in Tokyo.

We're open in Kyoto, Kobe, 23 different markets outside of Tokyo. It's a broad expansion in which we intend to be ubiquitous throughout Japan.

CNN: Are store sales higher in Japan because the population is more dense?

Schultz: The densities are one part of it. But I think the Japanese consumer was enamored from day one with the Starbucks brand and experience. We've become a No. 3 place in Japan, an alternative to work and home. We've been able to change the culture.

CNN: But same-store sales are flat. Does that mean growth from here is tough?

Schultz: Our same-store sales in Japan are an anomaly. Our stores ramp up at such a high level that it's very difficult to continue that kind of growth. In addition, we keep adding new stores near the existing stores, given there's such a demand.

CNN: Some people blast Starbucks as a symbol of creeping Americanization of the world. What do you make of that?

Schultz: Starbucks serves approximately 230 million customers a week. The loyal customers visit our stores around 18 times a month. That puts it at the highest level of any retailer that we know. So the customers are the ones who vote and support the company.

We're in the business of buying and roasting the world's best coffee, and opening up stores to satisfy our customers.

CNN: But stores like McDonald's have become targets of anti-American feeling. Are you worried about that with Starbucks?

Schultz: They're isolated events, and that has not happened very frequently. Any brand that has a retail storefront is a potential target, as opposed to a product or a consumer brand that just sits on someone's shelf.

After the tragedy of September 11, every company and every person around the world is affected by the fragility of these times. You can't go through life and not be affected by what's happened.

CNN: Have you done anything special for store security, particularly in the Middle East?

Schultz: We do have some stores in the Middle East, in Saudi Arabia, Kuwait and Dubai. And we think about security all over the world. Every company and every business has to think about those issues [now]. There's a heightened awareness on certain issues, but no, we haven't [changed anything].

CNN: Where else are you expanding, and will that mean more overseas IPOs?

Schultz: This past week, we just announced [a move into] Spain and Germany. One of our strongest strategic markets now is continental Europe.

That [IPOs] is certainly a possibility. There's nothing on the horizon in the short term but clearly today's success opens the door.

CNN: What are your best Asian markets?

Schultz: Starbucks is opening more than three stores every day around the world. Our interest in Asia is great because we don't have many stores there.

We're in 12 countries in Asia, with over 500 stores out of 1,000 international. Taiwan has been a great market for us, and the Philippines has been a great market. We're in Malaysia, Hong Kong, Singapore. And we continue to be very high on China. That's about a year old [as a market].

We will continue to execute our growth strategy. This is the beginning of a long and prosperous journey that we're on.