Starbucks Share Prices Falter After Racial Discrimination Issues Arise

Starbucks is an American coffee company and coffeehouse chain known across the nation for everything from it’s "Java Chip Frappuccino" to it’s "Birthday Cake Cops". Recently, Starbucks came under scrutiny regarding racial discrimination in one of its stores.

A video surfaced of two African-American men being arrested at Philadelphia Starbucks, for not placing an order. The video went viral, being featured on both local and national news broadcasts. Rashon Nelson and Donte Robinson, two African-American men were arrested minutes after arriving.

According to reports, upon entering the Starbucks, Nelson asked to use the restroom and was told it was only for paying customers. Then, while he was sitting down with Robinson waiting for another person, a store employee called 911, and asked police to remove the men from the store.

Starbucks responded to the incident quickly and announced the closure of over 8,000 stores so that employees can complete, "Racial Bias Education" on May 29, 2018. Over 175,000 employees will participate, and the training will be included for all new hires. Although Starbucks has declined to estimate their potential losses, some say the company could lose at least $6M on training day.

Starbucks shares have taken a hit since the video first surfaced, falling over a point in the first two days. It may be difficult to assess the damage immediately, as Starbucks has dropped to the lowest consumer-perception level since November 2015, and continuing to decline may affect revenue numbers in the next quarter.

When Starbucks CEO, Kevin Johnson met with Nelson and Robinson, the two men arrested last week in a Philadephia, Starbucks location, Johnson apologized for the treatment both men had received. Little did he know, a similar event had taken place in a Torrance, California, Starbucks.

Although the victim in the Torrance incident has not yet been identified, Starbucks responded saying "Please know that we take this video and commentary around it very seriously, and are working closely with the team to understand more, as you know, we are fully investigating our store practices and guidelines across the company.” Following that, the stock reports show that Starbucks has gone down another .55%.

No one could have predicted that a single Starbucks founded in 1971 would turn out to be a global success. The size of the company doesn’t protect it from events like the two incidents recently reported if anything the sheer success of the company makes those reports even more damaging.

How Starbucks proceeds, may very well affect the overall health of the company moving forward, which likely explains why Johnson is willing to suffer the financial losses of closing 8,000 locations for a day. The public perception of the company will be improved, and with the additional training, it’s less likely that similar events will tarnish the company reputation in the future. Investors won’t know until 2nd quarter earnings are reported how much these incidents affected revenue.