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Job security has fallen dramatically out of fashion.
The Bon-Ton Stores Inc., Eddie Bauer Holdings Inc. and Chico’s FAS Inc. let forth a wave of pink slips Thursday, but they are just the latest to cut back spending and lay off workers as they adjust to the economic realities of 2009.
Bon-Ton said it would let go 1,150 workers, as Eddie Bauer trimmed 193 positions and Chico’s reduced payrolls by about 180. The cuts came a day after Pacific Sunwear of California Inc. and The Wet Seal Inc. made similar, albeit smaller, reductions to head counts and during a week when corporate America — including The Home Depot Inc., Starbucks Corp., Boeing Co., Sprint Nextel Corp. and Caterpillar Inc. — hemorrhaged jobs. Target Corp. and Quiksilver Inc. also recently laid off employees.
Separately on Thursday, Chico’s revealed in a Securities and Exchange Commission filing that Michele Cloutier, president of the Chico’s brand, had resigned, although the move appears to have more to do with the company’s transition under its new chief executive officer, David Dyer, than any effort to downsize.
Bud Bergren, president and ceo of Bon-Ton, told WWD, “In this environment, our sales, as well as those of all the other retailers, are down, and you have to rightsize the company.”
As fashion and retail firms cut jobs to bring down expenses in response to — and in anticipation of — lower demand, they are also adding to the country’s more immediate economic woes. The ranks of the unemployed swelled by 159,000 for the week ended Jan. 17 to a record-breaking 4.8 million, according to a report Thursday from the Labor Department, which has records going back to 1967. Initial claims for unemployment rose by 3,000 last week to 588,000.
The unemployment rate rose to 7.2 percent in December from 4.9 percent a year earlier. The government will release its January job numbers next Friday. Economists cite employment as the single most important underpinning for consumer spending, the lack of which has laid low retailers and their stocks.
The S&P Retail Index fell 4.1 percent, or 11.28 points, to 265.64 Thursday, its worst showing since Jan. 20.
Investors, who often react positively to cost-cutting measures, traded shares of Bon-Ton up 1.6 percent to $1.27.
And despite reporting its latest cuts after the market closed Thursday, shares of Eddie Bauer jumped 20 percent to 78 cents. Chico’s stock fell 7.4 percent to $4.01. PacSun scored a 7.4 percent increase, to $1.31, while Wet Seal dropped 5.5 percent to $2.60.
Bergren said Bon-Ton’s workforce cuts would come from all areas of the company, including stores, corporate offices and distribution services. The layoffs account for 3.8 percent of Bon-Ton’s roughly 30,000-strong workforce.
The department store firm also eliminated bonuses for senior executives, merit-based wage increases across the company and future contributions to 401(k) retirement plans. All told, these cuts are expected to boost operating income by $70 million annually.
The 281-door firm, corporate parent to Bon-Ton, Carson Pirie Scott, Elder-Beerman and other names, said it would reduce capital spending to $40 million from an estimated $70 million this fiscal year, which ends Saturday. The restructuring is expected to lead to a $3 million charge to be recorded in the fourth quarter. Bon-Ton also anticipates noncash charges to write down the value of certain assets.
Bon-Ton has been dogged by concerns over its financial stability given its debt load from past acquisitions, but Bergren said the worries were unfounded.
“I don’t think people deal with the facts as much as they should,” he said, noting the firm has little debt coming due in 2009 and a revolving credit facility with borrowing capacity of $513 million.
“We have a lot of room to work with,” said the ceo. “We haven’t seen any disruption in shipments in goods at all. We pay right on time. We have not had payment issues with vendors at all.”
It remains to be seen if Bon-Ton’s cost-cutting efforts will be enough to overcome the headwinds of declining sales, said Monica Aggarwal, credit analyst at Fitch Ratings Inc.
“We’ll have to see where the free cash flow numbers come in,” said Aggarwal. “You’re going to hear a lot of these efforts being announced. Longer term, you are beginning to see some consolidation. Even some of the bigger companies are cutting back on [capital expenditures] in this environment because, ultimately, that’s what’s under their control. You can always turn on a capital spending program.”
Chico’s said it would cut approximately 180 jobs in its headquarters, and may close as many as 25 stores out of the current base of 1,076 units.
The Fort Myers, Fla.-based company said the move would reduce headquarters staff by about 11 percent and would lower payroll and related benefit expenses by roughly $15 million for the year. Chico’s said the job cuts would increase its expense savings goal for 2009 to between $35 million and $40 million from $25 million.
“Chico’s FAS has tremendous potential and a bright future, but like the rest of our industry, faces the challenges of one of the toughest economic environments in recent retailing history,” said ceo Dyer, adding it is “more critical than ever” for the retailer to “operate as efficiently as possible.”
Chico’s expects an after-tax charge of about $2.9 million in the fourth quarter related to the job cuts. Additionally, the firm expects fourth-quarter noncash impairment charges, before tax benefits, of $11 million to $14 million related to goodwill and $7 million to $9 million to cover underperforming stores.
A source close to the company said Cloutier’s successor will likely be named in “short order” and be an external candidate with women’s wear experience. Dyer is said to be actively involved in the search.
Cloutier joined Chico’s in September 2006 as executive vice president and general merchandise manager of the Chico’s brand. Before that, she was an independent consultant to Chico’s from 2004 to 2006 and senior vice president and general merchandise manager at AnnTaylor Stores Corp. from 2003 to 2004. She’s also held a senior merchandising role at Gap Inc.
Chico’s performance has been disappointing, with the company posting double-digit same-store sales decreases since February 2008. In addition to Chico’s, the company operates White House|Black Market, acquired in 2003, and Soma, which was launched in 2004.
Meanwhile, Eddie Bauer Holdings and its subsidiary Eddie Bauer Inc. cut 193 jobs at its Seattle headquarters in Seattle, 15 percent of its 1,299 non-retail employees, as part of a reorganization across four locations. An information technology center in Chicago, a distribution center in Columbus, Ohio, and a call center in Saint John, New Brunswick, Canada were the other affected facilities.
Other cost-cutting measures for fiscal 2009 include limiting net capital spending to about $15 million, freezing salaries, adjusting select benefits programs and reducing the size of the board and compensation for the remaining directors.
Tom Helton, senior vice president of human resources, said that, contrary to speculation, there are no plans for mass store closings and that the firm’s aim is to maintain the current store count of 379 full-price and outlet stores.
With its retail operations and depending on the time of year, Eddie Bauer employs between 8,000 and 10,000 people.
Neil Fiske, president and ceo, will take a 10 percent cut in his $1.1 million salary for the remainder of the year.
“This difficult step is one part of our previously announced program to cut between $10 [million and] $15 million exclusive of nonrecurring items out of the 2009 operating cost structure of the business, on top of the $45 [million to] $50 million cut in fiscal 2008. The company is proactively managing its cost structure and expenditures in 2009 in the face of the continuing economic downturn.”