Do You Hear What Starbucks Hears?

Fast Company: Why did you decide to buy Hear Music five years ago?

Howard Schultz: If you think about what occurs within a Starbucks store, I think we've known for a long time now that Starbucks is more than just a wonderful cup of coffee. It's the experience. And the experience is defined by what we have characterized for a long time as Starbucks really becoming this "Third Place" between home and work -- an extension of people's front porch, or people's home office. As a result of that, we realized early on that we had an opportunity to leverage the equity of the experience and the trust that our consumers have in the brand and in our people, to other products and services.

Music was a natural evolution because we had been playing music in our stores for almost 30 years. For a long time, our customers have actually stopped our people and asked, what is that song? When I saw Hear Music the first time, it was clear that they had cracked the code on the sense of discovery that music should have. We never dreamed that we'd be sitting on the unique opportunity we're sitting on now. We just saw that they were doing for music what we had done for coffee. It was this very respectful way of presenting music that, in a way, had become a lost art.

FC: What was your goal when you originally reached out to them?

Schultz: It was to integrate Hear Music's understanding of the music industry and their acumen as it related to their sense of editorial voice with Starbucks in a complementary way. And in doing so, to also examine whether there was an opportunity to expand Hear Music into other forms of channel distribution or new stores. But at a time when the retail record industry was going through such a very very difficult period, it became a complementary component to the existing Starbucks stores.

FC: Tell me how you found out about them. With all the different record chains out there, why Hear Music for this experiment?

Schultz: At our core, we're merchants. That means we travel the world all the time, looking at and examining the best retailers and merchants, whatever they might be. We're always looking for new ideas and to examine other ways in which people are doing things. In this case, we walked into a Hear Music store.

FC: Do you remember which one it was?

Schultz: The one I walked into is in the Stanford Shopping Center, but our people had also seen one in New England, I think. Then we met Don [MacKinnon], and clearly Don has just an unbelievable sense of quality and integrity in terms of the music industry. The group of people that he brought to Starbucks brought an expertise and a competency that we didn't have on our own. Sometimes I think when you make an acquisition like this, it's not necessarily for what you're thinking of today; it's something you're going to learn and incubate into the company. And here we are with a very, very significant opportunity as a result of that acquisition! We're pretty excited about it.

FC: Why did it take five years to get from acquisition to deciding to roll out this combination store? What happened in those intervening years?

Schultz: We've been pretty busy opening up Starbucks stores. But we've also already been highly successful, although in a narrow way, leveraging Hear Music's talents into Starbucks. We've been selling CDs under Don's thoughtfulness and expertise, primarily in compilations and recently in this new form of Artists' Choice.

But as an example, it's taken us two years to produce a highly anticipated record with Ray Charles. That's a two-year project. This is very unique in that it's a duets album with people like Norah Jones, Elton John, James Taylor -- all with Ray. That's in conjunction with Concord Records. This is the first time, really, where Starbucks has created an exclusive album like this, and in doing so, we're also going to distribute this ubiquitously outside of Starbucks stores, with Concord Records. It's going to be everywhere. Worldwide. In a sense, Starbucks is broadening its view of what's possible.

The music industry has been under such severe pressure over the last few years so, really, we've been an exception to the rule. Over the last few years while there's been such a level of attrition in terms of rate of sales of traditional music in traditional stores, Starbucks has been able to bring music to our stores and successfully, one CD after another, see it be received well. It's given us the courage now to do this Ray Charles thing. But you haven't seen anything yet in terms of what's coming.