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Howard Schultz's departure is a loss for Starbucks, 'he cannot be replaced'

  • A little over a year after leaving the position of CEO at Starbucks, Howard Schultz is still considered the face of the brand.
  • Now, as he plans his exit from his position as chairman, investors wonder just how big of a void will be left after he is gone.
  • Schultz called the future of the company "very bright" and praised his successor Kevin Johnson.
Howard Schultz and Kevin Johnson of Starbucks on CNBC's Squawk Box, December 2, 2016.
Source: CNBC
Howard Schultz and Kevin Johnson of Starbucks on CNBC's Squawk Box, December 2, 2016.

At Starbucks' annual shareholders' meeting in March, CEO Kevin Johnson took the lead, addressing investors about the company's plans for menu and tech innovation, as well as pay equity. Attendees cheered Starbucks' new parental leave plan, which allows adoptive parents to take time off, as well as its commitment to creating a greener to-go cup.

But nothing could compare to the thunderous applause and standing ovation that welcomed Executive Chairman Howard Schultz on stage nearly an hour and a half into the presentation.

A little over a year after leaving the helm of the company, Schultz is still considered the face of the brand and often mistakenly referred to as CEO.

Now, as he plans his exit from his position as chairman of the company's board at the end of the month, investors wonder just how big of a void will be left after he is gone.

"There is no way to spin this, Schultz's departure is a loss for Starbucks," Neil Saunders, managing director at GlobalData, told CNBC via email. "His involvement with the business and his expertise and knowledge means that he cannot be replaced."

Schultz oversaw the massive expansion of the Starbucks coffee chain over the past 40 years and is responsible for much of the company's innovation, social initiatives and global expansion.

He laid the groundwork for Starbucks' extensive employee benefits including, health care, stock ownership and free college tuition. As CEO, Schultz also led global hiring initiatives for veterans and military spouses as well as for refugees.

"The problem with a large multinational company being tied too closely to a particular individual is that it makes a departure more monumental," Dan Hill, CEO of Hill Impact, told CNBC via email.

Under Schultz's leadership, the company's stock has grown 21,000 percent since its initial public offering in 1992. However, weak sales of food and beverages and merchandise in the U.S. contributed to a 13 percent decline in Starbucks' stock over the past year.

"Ironically, his departure comes at a time when innovation is more critical than ever to Starbucks," Saunders said. "Getting more and more out of the existing business, which is now fairly saturated in the U.S., is becoming challenging."

Schultz expressed his confidence in the leadership team that he leaves behind at Starbucks in a CNBC interview on Tuesday. He called the future of the company "very bright" and praised his successor Johnson.

However, Johnson has labored in Schultz's shadow. The pair are separated by a door in their Seattle office and it was only in the last quarter that Schultz no longer appeared on the company's earnings conference call.

"Except for his ability to comment on the problem that happened in Philadelphia, [Johnson] really hasn't done anything," Jason Kaplan, CEO of JK Consulting, told CNBC. "I don't think that he's the right person to lead that team."

Nearly a year after Johnson took over as CEO, investors and analysts are still trying to gauge the success of his leadership. Some have praised his tech-savvy innovation and the company's growth in China, while others have lamented over the company's ongoing poor sales trends.

"I think between the new chairman from J.C. Penney, and Kevin Johnson not really having much of a food and beverage background will be major hindrance moving forward," Kaplan said.

Johnson was praised for his quick reaction to the incident at a Philadelphia Starbucks that resulted in the arrest of two black men. He took responsibility for the incident, committed to reviewing the company's culture and practices, provided clear statements to employees and customers and flew out to meet with the two men who had been arrested.

For some, this proved that he was the right leader for Starbucks.

However, Johnson was accompanied on that trip by Schultz, who delayed his departure from the company in wake of the incident.

"Kevin Johnson will carry on Schultz's legacy and Starbucks' deeply entrenched values aimed at making the world a better place for its customers, employees, and communities," Bob Phibbs, CEO of the Retail Doctor, told CNBC via email.

"As we saw following the incident in Philadelphia, Johnson demonstrated clear leadership, even with Schultz as chairman," he said. "When something outrageous happens, they act. From its socially conscious values to new initiatives, such as its Roasteries, Starbucks is a brand that will continue to hit on all cylinders."

The real test will be if Johnson can revive sagging U.S. sales.

Schultz told CNBC Tuesday, Starbucks is still a growth company, and it has hit soft patches in the past and recovered through innovation.

"I'm very bullish long-term on the company," he said. "And our U.S. comps over time will improve, I'm quite confident about that."