Can Schultz pull off a Starbucks makeover?

The handwriting was on the wall for Starbucks last Valentine's Day, when Howard Schultz sent out his famous memo, lamenting changes at the company he presumably chaired. It was clear someone was going to take the fall, and yesterday that turned out to be CEO Jim Donald. What surprised observers is that Schultz himself is back in charge, saying he was going to slow down growth in U.S. stores, pare bureaucracy, and reestablish the customers' emotional bond with the brand. Schultz watchers have detected an at-sea quality in the charismatic leader of late. He baffled many of the people working on the Sonics negotiations for an improved arena and then the sale. He would not stay on script, and his public appearances were often so improvised that they set the team's chances back. Meanwhile, Schultz was trying to create a global role for himself, a bit like Bill Gates and Bono. He seemed adrift, as did Starbucks. But of course Schultz has 17.7 million shares of Starbucks stock, so he has a huge stake in the company's fortunes. There aren't many companies that could buy Starbucks, though possibly Kraft Foods (a distribution partner) or a European firm could be interested if the company rights itself. Psychologically, maybe it's just a case of a dynamic CEO passing the reins too soon (as he did in 2000), and he'll be able to refocus his energies by returning as barista-in-chief? So re-enter Howard, who's famous for his can-do approach to problems, and already has his tranformation agenda. The coffee giant is caught in a classic squeeze play. Pushing up underneath are Dunkin Donuts and McDonald's, offering many locations and now coffee that can rival Starbucks in taste and beat it in cost. Pushing down from above are the independent stores and smaller chains, promising greater quality, more local roots, and that emotional, aromatic, in-store connection. Can a company as big as Starbucks recreate that small, local store mystique? Examples are not easy to find, though luxury German automakers might be one positive illustration of how to do it. Schultz has always been a genius at making big, commercialized products seem ripe with personal fulfillment. His positioning of Starbucks as a "third place," a friendly spot to write one's novel or meet fascinating strangers, has worked, even though the business is really about speed and convenience, not lingering. He tried again with the Sonics, trying to make a tough, urban, black sport into a very family-friendly experience, like the old high school games that rallied small towns. That didn't work, but Schultz was playing in an unfamiliar arena. A lot rides on how well Schultz can engineer this makeover. Much of Seattle's international brand is linked to Starbucks: global trade, good service from friendly young people, cozy gathering spots, environmental stewardship, health-insurance reform, artisinal foods, addressing global poverty. Most other Seattle success stories, such as Costco and Amazon and Microsoft, have settled for competing on price and vast inventory, not the feel-good aspects.