Starbucks may be making big error

Howard Schultz, Starbucks Corp's founder, is being treated as this year's answer to Apple Inc's Steve Jobs or Charles Schwab Corp's namesake. History suggests this may be a mistake.

Schultz's return as chief executive officer of Starbucks, the world's largest chain of coffee shops, eight years after he gave up the job touched off an 8 percent rally in the company's shares on Tuesday. The gain was the biggest since February 2006.

The stock's advance shows confidence that he can revive the company, based in Seattle, which recorded its first-ever decline in customer visits during the quarter ended September 30 and reduced sales and earnings forecasts in November. Starbucks shares fell 42 percent last year, their worst-ever annual performance.

If Schultz succeeds, he may well deserve a place alongside Jobs, who spurred the maker of Macintosh personal computers to introduce iPod digital music players, and Schwab, who runs the biggest US discount brokerage.

Apple's shares have soared 33-fold since September 1997, when Jobs became the Cupertino, California-based company's top executive. He took the position a dozen years after his ouster from the company, which he co-founded.

Schwab has jumped 175 percent since July 2004, when the San Francisco-based company ousted

CEO David Pottruck and picked its founder to succeed him. The stock is the best performer for the period in the Amex Broker-Dealer Index, consisting of 12 firms.

For now, it's better to compare Schultz with Dell Inc's Michael Dell, Vonage Holdings Corp's Jeffrey Citron and Yahoo! Inc's Jerry Yang, who founded or co-founded their companies and took the CEO reins within the past 12 months. None of them is currently beating the market.

Michael Dell succeeded Kevin Rollins at his company, the world's second-largest maker of PCs, in January. After gaining 26 percent during his first nine months at the helm, the stock retreated as fiscal third-quarter profit disappointed investors. For Dell's tenure, shares of the Round Rock, Texas-based company were down 14 percent as of on Tuesday.

A track record like this ought to give Starbucks investors pause. Assuming Schultz will perform as well as Jobs and Schwab have done is a leap of faith, judging by what's happened to the other returnees.

David Wilson is a Bloomberg News columnist. The opinions expressed are his own.

(China Daily 01/10/2008 page16)