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If Tuesday’s Senate’s passage of an $838 billion stimulus package and the Treasury Department’s new plan to stabilize the credit markets were meant to buoy the spirits of employers and investors, the effects were largely lost on Wall Street, in Detroit and in Bentonville, Ark.
Wal-Mart Stores Inc., the world’s largest retailer and one of those that’s been least pummeled by the recession, joined the rapidly growing list of stores cutting costs when it said it would shed between 700 and 800 jobs at its Bentonville headquarters, between 5 and 5.7 percent of its hometown workforce and move all apparel buying operations to New York.
The company, which employs 14,000 people at its headquarters and 2.2 million worldwide, joins the growing list of retailers that have unveiled layoffs in the face of the recession — a list that is expected to increase in coming months, with some predicting the sector could lose 100,000 jobs monthly throughout 2009. Already, Macy’s Inc., Target Corp., Saks Inc. and a long roster of specialty stores have made significant job cuts in recent weeks.
More significant than Wal-Mart to the national unemployment picture, in Detroit, General Motors Corp. said it would cut another 10,000 salaried jobs, reducing its white-collar workforce to 63,000 this year. The bulk of the cuts are expected before May 1, and those surviving them are expected to have their salaries reduced between 3 and 7 percent. Executives are expected to have their compensation slashed 10 percent.
And late Tuesday, Nike Inc. announced a corporate restructuring that could result in the elimination of about 4 percent of its 35,000-person corporate workforce, or about 1,400 jobs. [See related story, opposite page.]
The news of the job cuts fused with disappointment about the Treasury Department’s new initiative and uncertainty about the ultimate fate of President Obama’s stimulus package, which still requires reconciliation with a previously passed House version, to send stocks into a tailspin, reducing all major indices more than 4 percent.
The S&P Retail Index sank 4.2 percent, its worst one-day performance since its 5.9 percent decline on Jan. 20, the day of Obama’s inauguration. The 4.6 percent decline of the Dow Jones Industrial Average, to 7,888.88, was the worst since Dec. 1, but less pronounced than the S&P 500’s 4.9 percent drop.
At Wal-Mart, the cuts will affect Wal-Mart Stores’ real estate, marketing, merchandising and some support divisions, and the merchandising division at Sam’s Club. The company’s decision to move apparel buying to New York comes about a year after it moved apparel design operations there.
“We’re going to increase our presence in New York City,” said Wal-Mart spokesman Dave Tovar. “It makes sense to have them there so that they’re closer to our designers and suppliers.”
Tovar said the 700 to 800 positions to be eliminated in Arkansas include buying operations there. The figure does not account for the jobs to be created by the move to New York, he added. The company declined to specify either the number of apparel jobs eliminated in Bentonville or the size of the New York contingent.
Wal-Mart will continue hiring in store-level positions for the 125 to 140 units it plans to open this year, Tovar said.
While Wal-Mart’s cuts are small in comparison to many of its competitors’ — and as a percentage of its total workforce — they demonstrate how, in the current economic climate, even the strong feel they have to slash to survive. Outperforming its peers, the company’s U.S. stores, excluding fuel, posted a same-store sales increase of 2.8 percent in the just-concluded fiscal year, twice the size of its 2007 increase, and saw its net sales rise 6.2 percent to $398.26 billion.
Wal-Mart has been outperforming its peers since last year, and on Tuesday its main rival, Target, saw its stock downgraded to “sell” from “hold” by Standard & Poor’s. The action was based on the belief that “traffic will remain soft in [the new fiscal year],” according to S&P retail analyst Jason Asaeda. Based on his view that consumers will turn away from “higher-margin discretionary purchase categories such as home and apparel” as well as Target’s heightened exposure to bad debt, S&P lowered its earnings expectations 28 cents to $2.87 a share for the just-concluded fiscal year.
Two weeks ago, Target unveiled plans to cut about 9 percent of its headquarters’ staff in Minneapolis and St. Paul.
Target’s shares closed Tuesday at $31.29, down $1.44, or 4.4 percent, while Wal-Mart was off $1.56, or 3.2 percent, to $47.72.
S&P also revised its credit outlook for the Estée Lauder Cos. Inc. to “negative” from “stable” based on “the very difficult retail environment and the company’s recent results for the fiscal quarter ended Dec. 31,” but affirmed its ratings on the company, including its “A” corporate credit rating.
The stimulus plan passed by a vote of 61 to 37, sending a cornerstone of the Obama agenda into conference negotiations. Business tax breaks include an extension of net operating losses to five years from the current two years, extending a 50 percent bonus depreciation for two years, an extension of small business expensing and expansion of the work opportunity tax credit for unemployed and troubled youth, and recently discharged veterans.
“The health of the retail industry is a bellwether for our nation’s economy,” wrote 12 retail executives in a letter they sent Monday to House and Senate leaders urging quick passage of the bill and expressing their support for specific provisions.
Among the executives were Myron “Mike” Ullman 3rd, chairman and chief executive officer of J.C. Penney Co. Inc.; Eric Wiseman, chairman and ceo of VF Corp., and Eduardo Castro-Wright, president and ceo of Wal-Mart Stores U.S. Citing six consecutive months of retail sales declines and dramatic job losses of more than 500,000, the executives said it amounted to the “worst retail economy in more than 30 years,” warning the industry is expected to lose 100,000 jobs a month in 2009.
“The overarching goal for economic recovery legislation should be to increase consumer confidence as expressed through increased consumer spending and to get America working again,” the executives said.
“The biggest provision for retailers is the net operating loss carryback,” said a spokesman for the National Retail Federation. “The estimates are that it would generate $15 billion to $20 billion [in refunds] for all sectors and a quarter would come to retailers. This is cash badly needed for retailers struggling to keep stores open and keep employees on the payroll.”
The bill would extend by two years the trade adjustment assistance program, a federal program that provides aid to workers who lose their jobs due to international trade.
Heated debate in the Senate bill surrounded a “Buy American” provision for all manufactured goods used in public works projects receiving funding from the stimulus. Obama was forced to address the provision after receiving flak from foreign allies, saying he was wary of the language appearing “protectionist” and wanted to avoid “triggering a trade war.”
The provision is included in the final bill, but it was tweaked by an amendment clarifying the “Buy American language” had to be “applied in a manner consistent with U.S. obligations under international trade agreements.” The domestic textile industry said it would give a boost to makers of geosynthetic fabrics, including fabrics used to prevent soil erosion, drainage construction and housing fiber-optic cables.
Another area that will need to be reconciled in conference is a stipulation in the House bill that did not make it into the Senate version that requires the Transportation Security Administration, a division of the Department of Homeland Security, to purchase U.S.-made and assembled uniforms.
Also on Tuesday, Treasury Secretary Timothy Geithner laid out the administration’s approach to stabilize the financial system by recapitalizing banks and boosting credit to businesses and consumers. Geithner outlined several key initiatives, including injecting additional public capital into the banking system, establishing a “comprehensive stress test” for banking institutions to establish stronger and cleaner balance sheets before they receive government funds, a public-private entity that will buy up troubled assets and extending up to $1 trillion to support an initiative established last year that is intended to make it easier for consumers and small businesses to get credit.