SBUX Starbucks Corporation

By Julie Jargon 

Starbucks Corp. Howard Schultz is stepping down as chief executive of the Starbucks Corp so he can devote all of his time to a new strategic initiative of opening high-end coffee shops for the 45-year-old company.

Mr. Schultz, 63 years old, is handing over the reins to President and Chief Operating Officer Kevin Johnson, who served as a board member of the company for several years before joining its executive team two years ago.

Mr. Schultz will remain chairman of Starbucks and said he has no plans to step away from the company or run for political office, as many have speculated in the past due to his vocal stance on such issues as veterans' rights and job creation.

"I don't have any time horizon that would limit my engagement in the company," he said in an interview. "This gives me the entrepreneurial freedom to do what I think I do best."

The move is aimed at refreshing the Starbucks brand, which has been facing increasing competition from specialty roasters such as Stumptown and Intelligentsia as well as from mass coffee purveyors like Dunkin' Donuts, which has been introducing more high-end drinks such as cold-brewed coffee.

Mr. Schultz said the approach could also help protect Starbucks from an inevitable loss of traffic from people who order more goods online, instead of making mall trips. He decided that opening high-end coffee shops that would provide a luxurious experience would entice people to leave their homes.

Two years ago the company opened its first such store, the Seattle Reserve Roastery and Tasting Room, a 15,000-square-foot store where coffee is roasted and people can buy $12 cups of small-batch "reserve" coffees made with a siphon brewing technique.

Starbucks is planning to open 20 to 30 more of the high-end stores, including one twice its size in Shanghai next year. The company plans to build up to 1,000 smaller stores similar to the Roastery, minus the on-site roasting, under the "Starbucks Reserve" brand with a logo that consists of just a gold star and the letter "R."

Mr. Schultz described the plan as the company's biggest strategic initiative since Starbucks began opening stores overseas 20 years ago.

Starbucks is also remodeling many of its stores with Reserve-branded coffee bars where customers can get the same kind of coffee education and different brewing methods offered in the Reserve stores. The company also plans to test out new drinks and food at those stores and then introduce them in its traditional coffee shops that don't contain Reserve bars.

Mr. Schultz has shepherded Starbucks through many changes since he joined the coffee company in 1982 as its marketing director.

After leaving the company after a dispute with its owners, Mr. Schultz in 1986 opened his own coffee shop, which he named Il Giornale, and later bought the Starbucks retail unit from its owners. He renamed his shop Starbucks and went on to expand the brand to more than 25,000 stores across the globe.

This isn't the first time Mr. Schultz has stepped down as CEO. In 2000, he left the company so he could focus on other endeavors, such as his ownership of the NBA's Seattle SuperSonics. But he returned in 2008, when the company was struggling, in order to help turn around the business.

In recent months, as he decided that focusing on opening high-end shops serving more expensive coffee and food was the way to create more growth in the company, Mr. Schultz began handing over the daily operations of Starbucks to Mr. Johnson, a former Microsoft executive. The idea for Mr. Schultz to focus squarely on the new strategy wasn't something he planned when he first hired Mr. Johnson.

"When I joined the management team two years ago, the intent coming in was to play a role in this strategy, not about a plan around this CEO transition," Mr. Johnson said.

Shares of the company fell 3.1% to $56.65 in after-hours trading as investors reacted to Mr. Schultz's departure.

Write to Julie Jargon at julie.jargon@wsj.com

(END) Dow Jones Newswires

December 01, 2016 16:41 ET (21:41 GMT)

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