According to Bloomberg Businessweek, coffee giant Starbucks sold $1.4 billion last quarter in gift cards and people putting money on their Starbucks app. The increase undoubtedly resulted from many people buying gift cards for family and friends during the holiday season. The article says that Starbucks has already began to invest some of these earnings into high-grade corporate bonds, Treasury notes, and certificates of deposit that mature in three to 12 months. The author goes on to discuss how much Starbucks has been investing recently. It says, "In the past four quarters, Starbucks has made $146 million on interest alone—or 8 percent of total profit." This article is an interesting look at how Starbucks has been able to market its app and gift cards so well, while at the same time using the earnings wisely and investing in the future.
http://www.businessweek.com/articles/2014-01-24/starbucks-just-sold-1-dot-4-billion-in-gift-cards-dot-what-did-it-do-with-that-cash#r=nav-r-story
7 comments:
Great article, it is clear to see that after Starbucks' visionary founder, Howard Schultz, returned to the helm of the company, it began to regain excellence. During 2008, Starbucks' stock was worth less than $10 per share and after Schultz's re-dedication to their mission statement guided Starbucks above $35 a share. Currently, their share price is at $75 and have seen a 1 year return of +33.74% which is stemmed from their gift card sales. It is clear Starbucks is positioning itself for future stability with the amount they are putting in to long term investments.
I wonder how much money was never used from those gift cards.
I believe that the recent success that Starbucks has had can be contributed to their ability to innovate and identify trends going on in the market. This has helped them operate more efficiently and therefor maximize profit.
I agree with the above comment. It is clear that Starbucks has done research to identify the trends in the market. The mobile-payment app has helped raise Starbucks' sales.
This is actually really interesting on a much bigger scale. The fact that this is an impressive sum to Starbucks as well as their plans to invest in it are positives for the GDP and US's economic future. Investment will increase the GDP as it's part of that equation, but it might also indicated a rise in the confidence of consumers to spend on good, especially on luxury goods like Starbucks. This has the potential to lead to a greater consumption in GDP in future years as it indicates an upswing in spending.
I dont know how this relates to macroeconomics, however in terms of finance it is generally understood concept of a bird in the hand is worth two in the bush. A gift card is generally promoted and even discounted because it guarantees present cash flow. It is free money and hence u can earn interest on that until the time someone actually makes a purchase which might be a year later. In the meantime the company could earn interest which might end up being 8 to 10% or even more. This is the same reasons why insurance companies are a great buy, because the time between the premium and the actual payout could earn you a decent amount of interest or increase in capital
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