As Whole Foods Market, Inc. (WFM) Enters Detroit, Threat of Over-Expansion Looms

That overexpansion led to a management shakeup. Howard Schultz returned as CEO early in 2008, and laid out an ambitious plan to right-size the retailer. Since then, Starbucks has been a terrific stock, up nearly 600% since early 2009.

Now, Starbucks Corporation (NASDAQ:SBUX) is shifting back to growth mode. The company has promised to open 1,500 new cafes in the US over the next five years. Management has said that it won’t repeat the mistakes of the past; it will be interesting to see if it can make good on that pledge.

Crocs, Inc. (NASDAQ:CROX) was almost left for dead

Shoemaker Crocs, Inc. (NASDAQ:CROX) was one of the hottest stocks of 2007. Rapid growth propelled shares from about $20 at the beginning of the year, to almost $70 just 10 months later.

But unfortunately, Crocs’ management was unable to effectively handle that growth. By 2009, the company was forced to fire a third of its workforce, as demand for its once widely popular shoes plunged.

At the depths of the market bottom, in early 2009, shares of Crocs, Inc. (NASDAQ:CROX) were trading near $1 — almost a penny stock.

In more recent years, the company has been able to stabilize its growth somewhat, though it remains fairly turbulent. In November, shares dropped about 25%, but have largely regained their losses. Imperial Capital upgraded the company back in February after a strong earnings report, and thinks the company is well positioned to continue to grow in the coming years.

The perils of growth

The danger with growth stocks is that, at some point, the market for their product becomes oversaturated. It’s happened numerous times in the past; Starbucks and Crocs are great examples.

It might be happening to Whole Foods Market, Inc. (NASDAQ:WFM) now. The company’s decision to build stores in low-income neighborhoods is cause for some concern. Has Whole Foods run out of markets to enter? If so, investors could be in for some tough times in the months ahead.

The article As Whole Foods Enters Detroit, Threat of Over-Expansion Looms originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Starbucks and Whole Foods Market (NASDAQ:WFM). The Motley Fool owns shares of Crocs, Starbucks, and Whole Foods Market. Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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