Two years ago, National Legal and Policy Center’s Carl Horowitz foretold that policies implemented by Starbucks, in response to a nationwide uproar over an incident in a Philadelphia store, “will not work.”
Horowitz emphasized the failures of mandatory diversity training, which the company imposed on employees across its more than 8,000 locations in May 2018, while shutting down business for the day. The action was taken following a conflict in an upscale neighborhood store, in which two black men waited for a friend at a table, and were denied access to the Starbucks’s restroom because they had yet to purchase anything, were then arrested for refusing to leave.
“I’m embarrassed, ashamed,” said then-CEO Howard Schultz – a liberal who briefly contemplated running for president this year – at the time. “I think what occurred was reprehensible at every single level. I think I take it very personally as everyone in our company does and we’re committed to making it right…It will cost millions of dollars, but I’ve always viewed this and things like this as not an expense, but an investment in our people and our company. And we’re better than this.”
Besides the mandatory training, Starbucks also implemented another policy after the incident that appears to have cost it millions of dollars: free loitering and use of bathrooms at all its locations, without requiring a purchase.
Now there’s an academic study that calculates and explains those costs.
Researchers from Boston College and the University of Texas at Dallas analyzed anonymized cell phone location data (you know, the kind of data the tech giants are now using to see who is obeying the COVID-19 restrictions) to determine how visits to Starbucks have changed since the policy was modified. The results of this progressive strategy aren’t pretty.
“After April 2018 protests, Starbucks enacted policies that anybody could sit in their stores and use the bathroom without making a purchase,” authors Jordan Nickerson, David Solomon and Umit Gurun wrote. “…We estimate this led to a 7.0% decline in attendance at Starbucks locations relative to other nearby coffee shops. The effect is 84% larger near homeless shelters, and larger for Starbucks’ wealthier customers. Remaining Starbucks customers spent 4.1% less time per visit.”
In other words, Starbucks suffered a seven-percent loss in visits compared to its neighboring competitors. For locations close to homeless shelters, the effect was even worse.
The researchers noted that findings such as these would not be found in Starbucks’s public disclosures because those fail to take into account any effects on nearby coffee shops. So an SEC filing would not identify foot traffic or business that Starbucks could have realized if not for the new policy.
And the study authors also note that Schultz’s proclamation of the new policy was basically a self-inflicted wound.
“What is striking about the change is that Starbucks already had a quasi-public bathroom policy,” the researchers wrote. “While the enforcement varied by store, the implicit arrangement in most places seemed to be that one could effectively use the bathroom as long as one looked like they might be about to make a purchase (or could officially use it, for the price of a few dollars in purchases).
“To move from a mostly open policy to a completely open policy thus affected only a relatively small fraction of the populace: those unable to credibly signal that they might be willing and able to spend a few dollars at the store. If these changes impacted the ability of other customers to use Starbucks amenities, or if customers prefer to not be around certain types of clientele, then the change could nonetheless have significant effects.”
So the result of providing a public service (like restrooms) for free incentivizes people to come take up space in your business, without the business reaping a financial benefit that helps cover the cost of that public benefit. In some cases, it costs you business. And in areas where homelessness is prevalent, it is disastrous.
“This highlights the difficulties of companies providing public goods,” the study authors wrote, “as customers are crowded out by non-customers” – and potential paying coffee-drinkers are repulsed by vagrants.
The Starbucks outcome is a microcosm of what has become of America’s progressive-run major cities, in which policies enable the homeless to soil and tarnish neighborhoods, driving customers and ultimately businesses away. Even the liberals who (knowingly or unknowingly) voted in support of those policies are getting sick of it, as The Guardian reported last year.
“We have to look at San Francisco and say here’s the best technology example in the world and yet the worst homelessness,” said Salesforce CEO Marc Benioff of his city last year, to CNBC. “San Francisco is kind of a train wreck, we have a real inequality problem.”
The economic researchers who studied Starbucks’s policy said the company should have known better.
“A fundamental prediction of public economics is that when an investment has a personal cost but a common benefit, individuals will under-invest,” they wrote. “The Starbucks experiment provides an opportunity to observe the effects on customer behavior of providing a particular form of public good (bathrooms) at zero cost to everyone. Our evidence suggest(s) that the Starbucks policy decreased both the foot traffic and time spent at Starbucks, especially in stores that are closer to homeless shelters.”
As the CEO of a major corporation, Schultz (and current CEO Kevin Johnson, who has retained the policy) should have foreseen this outcome. But it was more important for these liberal leaders to virtue-signal.