With layoffs, retailers aim for safety not regret (again)

The retailer is trying to figure out the right size.

Retailers, faced with skyrocketing demand from shoppers during the pandemic, have ramped up operations in areas such as human resources, finance and technology over the past three years. Now times have changed.

A public that rushed to buy all kinds of goods in the early parts of the pandemic is now spending less on merchandise such as furniture and clothing. E-commerce, which boomed during the lockdowns, has fallen from those heights. And with consumers worried about inflation in the prices of daily necessities like food, companies are playing defense.

Saks Off 5th, the Hudson Bay off-price retailer, laid off an undetermined number of employees on Tuesday. Saks.com is laying off about 100 employees, or 3.5 percent of its employees. stitch fix This month laid off 20 percent of its wage earners and closed a distribution center in Salt Lake City. Last week, Wayfair said it would stop 1,750 people, or 10 percent of its workforce, and Amazon began laying off 18,000 employees, many of them in its retail division. Bed Bath & Beyond this month reduced its workforce as it tries to get its finances in order and prepares for a potential bankruptcy filing.

While it’s not uncommon for major retailers to announce store closures and job cuts following the holiday blitz, the recent spate of layoffs is more about structural changes as the industry recalibrates itself after the rapid growth of shopping through the pandemic. And it comes with broader concerns about the state of the US economy and layoffs from leading tech companies.

“Retailers are really conscious of capital preservation,” said Catherine Lepard, who leads the global retail market for executive search firm Heidrick & Struggles. “They don’t know how long this cooler economy is going to last, and they want to make sure they have the right money to get through it. For struggling retailers, this really means tightening their belts with some cost savings.”

Sales during the all-important Christmas shopping season were weaker than in recent years, when growth reached record levels. Retail sales in December were up 6 percent from the same period last year, but that number was not adjusted for inflation, which was 6.5 percent.

Department stores recorded sharp declines in turnover. At Nordstrom, sales in the last nine weeks of 2022 were down 3.5 percent from a year earlier, with the company noting that they were “softer than prepandemic levels.” Macy’s said Christmas sales were at the lower end of expectations.

The layoffs at certain retail companies are a sign that the industry is bracing for a slowdown and another change in the way people shop.

“To mitigate macroeconomic headwinds and best position our company for success, we have made changes to streamline our organizational structure,” Meghan Biango, a spokesperson for Saks Off 5th, said in a statement. “As part of this, we’ve made the difficult decision to part ways with employees in different parts of the company.” The layoffs affected divisions such as talent acquisition and supply chain.

Not all retailers are defensive. For example, Walmart announced this week that it would increase the minimum wage for its store employees to attract and retain workers in a tight labor market.

Still, some retailers are focusing less on acquiring new customers – an expensive endeavor – and more on keeping the customers they won during the pandemic.

“There’s a sense of conservatism,” said Brian Walker, chief strategy officer at Bloomreach, which works with retailers on e-commerce and digital marketing. “They are still adapting to this omnichannel retail environment in many ways and probably see this as an important time to calibrate their organizations and make sure they have the right people and not too many of them to be pragmatic and a weather a possible storm. .”

That means fewer projects that require a lot of money and time and more investments where a company can see results quickly, said Mr. Walker.

Mrs. Lepard agreed. “This is not the economy to get really creative and take big risks,” she said. “Maybe some of that innovation will be pulled back into future investments to make sure they pace themselves.”

It’s also a time for retailers to assess what e-commerce capabilities they need. In the first months of the pandemic, online sales exploded as many physical stores closed. That growth has slowed. Ecommerce traffic in North America fell 1.6 percent in the third quarter of 2022 compared to a year earlier, according to Bloomreach’s Commerce Pulse data. Conversion rates — the measure of someone buying an item after seeing an ad for it — fell 12 percent over the same period.

“This is where people rocketed down the catwalk,” said Craig Johnson, president of retail consulting firm Customer Growth Partners, who has followed the industry for 25 years. “This works like a ratchet. It could be as high as 27 percent, but that will normalize,” he added, referring to the share of total e-commerce spending for the first year of the pandemic, when many stores struggled with Covid restrictions and closures.

As online spending increased, many companies pushed to include features that could help them meet the demand. Now they have to get used to a new reality.

“Unfortunately, we have over-complicated things, lost sight of some of our fundamentals and simply become too big,” said Niraj Shah, CEO of Wayfair, in a statement. remark to employees last Friday. His company, which reported in November that net sales were 9 percent lower than a year earlier, wants to save $1.4 billion.

In the luxury sector, shopper demand is still there, but restructuring is needed to keep innovating. As part of the layoffs, Saks.com also separated its technology and operations teams.

“We are at a point in our journey as a digital luxury pure-play where we need to optimize our business to ensure we are best positioned for the future,” Nicole Schönberg, a spokeswoman for Saks, said in a statement. “These changes are never easy, but they are necessary for our future success.”

While cutting staff can help cut costs in the short term, retailers will run into problems in the future if they don’t also consider how to improve the customer experience online, said Liza Amlani, founder of Retail Strategy Group, who works with brands on their merchandising and planning strategies.

“With Wayfair, and as with many digital players, over the last three years we have seen them scale and grow too quickly,” said Ms Amlani. “They were counting on an influx of digital spending. They did not invest where they should invest.”

Retail layoffs are a reversal from 2021, when companies couldn’t hire frontline workers fast enough. After the initial shock of the pandemic, which led to many retailers taking furloughs or even firing firefighters, many people received government stimulus. They wanted to spend that money, and when companies needed to ramp up their shopping services again, they often struggled to find enough employees.

Recalling that difficulties could make some retailers think twice before laying off workers this time, Mr Walker said. If there’s never a sharp downturn, or if there’s a sudden uptick in demand, companies don’t want to be left without enough workers.

But the coming months could be tough for retailers as profit margins shrink and revenue growth slows from years past. In such an environment, investors generally like to see large companies take measures to cut costs. And once the layoffs start, a kind of groupthink can set in.

“Once a few companies start doing it,” said Peter Cappelli, a professor at the University of Pennsylvania’s Wharton School who researches management and human resources, “it creates a momentum where you have to explain why you’re not doing what everyone else is doing.”