On Thursday, Starbucks CEO Howard Schultz announced he is stepping down next year.
This isn’t the first time Schultz, who first joined Starbucks in 1982, has stepped down from his position as CEO. It also happened 16 years ago — and it was a disaster for the coffee chain.
In 2000, Schultz stepped down after a 13-year run as CEO. He assumed the role of chairman, with the mission of focusing on the company’s global strategy.
Then Starbucks had only 2,800 stores and earned roughly $2 billion in annual revenue. There were just 350 Starbucks locations outside the US.
In the seven weeks after Schultz stepped down in 2000, shares fell 28%, MarketWatch reported.
But the company soon began a steady recovery. Under Schultz’s replacement, Orin Smith, Starbucks’ business exploded, with store count tripling to 9,000 locations. Starbucks made more than $5 billion in annual total net revenue in fiscal 2004.
Smith retired in 2005, and was replaced by Jim Donald. At the time, Schultz said Donald was picked for his stamina and hands-on approach, which Starbucks hoped would be assets as the chain swiftly expanded and built its food business. By 2007, the company had roughly 13,000 locations worldwide.
Soon, however, it became clear that Starbucks’ had opened too many stores too quickly. With increased pressure from brands like McDonald’s and Dunkin’ Doughnuts, the chain struggled to continue to attract new customers and grow sales.
“I have said for 20 years that our success is not an entitlement and now it’s proving to be a reality,” Schultz wrote in a leaked memo to Donald in February 2007. In the note he said the chain had watered down its brand with changes such as automatic espresso machines and more “sterile” store designs.
Starbucks stock plummeted 42% in 2007 as the Great Recession took hold.
“The damage was slow and quiet, incremental, like a single loose thread that unravels a sweater inch by inch,” Schultz said of Starbucks’ troubles in his book, Onward.
In January 2008, Starbucks fired Donald and Schultz returned as CEO.
Schultz debuted an aggressive turnaround plan with steps that included temporarily closing all US stores to re-train employees on how to make an espresso. Starbucks appointed the company’s first chief technology officer and debuted its now legendary Starbucks’ rewards card. In early 2009, the company closed 600 under-preforming US stores, 70% of which had been open for three years or less.
Within two years of Schultz’s return, the company was back on track. Starbucks’ stock hit a then all-time-high in mid-2011, beating its previous record set in 2006. The company’s stock reached its peak of $62.61 in October 2015.
The company’s struggles from 2000 to 2008 make Schultz’s recent decision to step down as CEO seem like an uneasy proposition for the company. However, Schultz has said his exit as CEO will be very different in 2016 than it was in 2000.
“The differences between then and now couldn’t be greater. In 2007, 2008, the country was going through a cataclysmic financial crisis that affected all companies, especially consumer brands, and Starbucks was not immune,” Schultz said in a call with investors on Thursday.
Schultz said he believes Starbucks’ management team today has capabilities and experience the company lacked in 2000.
“On a personal level, I don’t think I was as prepared then as I am now, primarily because of my confidence in the strategy, my confidence in the team, and my deep deep respect for Kevin Johnson as a servant leader,” Schultz said.
Schultz may now take a more hands-on approach to his role on the board than he did in the past, a period during which he said he “wasn’t engaged” enough to notice and halt the company’s downfall.
“I’m not leaving the company. I’m here every single day,” he said in Thursday’s call.
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