With layoffs permeating the tech, financial and telecom sectors, is the retail industry next in line?
Over the past week, corporate layoffs at Saks.com and TheBay.com, which are both part of the HBC portfolio, as well as Kohl’s Corp., came to light, fueling concerns of whether that’s just the tip of the iceberg for the industry. Saks.com laid off about 100 workers; TheBay.com, 250, and Kohl’s, about 60.
While far from the scale of the thousands of layoffs in the tech sector, it’s clear that retailers need to recalibrate and manage costs to be more in line with softening revenues. Consumers are spending less on merchandise, Christmas sales were below expectations and a recession looms. Now retailers are under margin pressure due to rampant discounting to reduce excess inventory and running into price resistance from shoppers due to inflation.
“Many do have to reshape and rebalance to manage for what is coming, and for growth in the future. Those are not easy decisions,” said David Bassuk, global leader of the retail practice at AlixPartners, a leading retail consulting firm.
In November, AlixPartners surveyed 300 senior retail executives, including many chief executive officers, to gauge workforce plans. A key finding was that over the next 12 months, 20 percent of the retailers are expecting to trigger layoffs. The survey also revealed that 14 percent of the retailers will issue furloughs; 19 percent said they would slow hiring; 37 percent said they would slow raises or promotions, and 22 percent indicated reducing wages.
Asked if retailing would be hit by a big wave of layoffs as seen in other sectors, Bassuk replied: “We should not take cues from other industries.…There are very unique requirements in retail for defining business models and shaping operating strategies and those need to be factored in — in a very strategic way. The retail industry is unique and the strategies for going forward and being successful are complex.”
Bassuk emphasized that what retailers experienced and learned through the pandemic should play into their plans. “There was the downturn and then a rapid rebound. The consumer sector has a lot of that potential volatility, so retailers need to be smart and strategic.”
This year “will be a year of efficiency, focusing on performance and squeezing more out of what you have, much more so than on expansion,” said Gerry Szatvanyi, cofounder, president and CEO of OSF Digital, which has worked with L’Oréal, Giorgio Armani, Crocs and Diane von Furstenberg on implementing e-commerce operations. “We haven’t seen any drastic cuts in the retail space or in brands. We just see them being cautious and making changes here and there, nothing like you have seen in tech with Amazon and Google.”
Meta cut 11,000 jobs one week in November 2022, and Amazon cut 18,000 the next week. In January this year, Salesforce cut 8,000 positions, Microsoft eliminated 10,000, and Alphabet, the parent company of Google and YouTube, cut 12,000 jobs.
Szatvanyi did say some retailers overinvested in running warehouses and other e-commerce related operations and “need to make adjustments there and will make adjustments in brick-and-mortar as well. “It’s a case-by-case situation.” During the pandemic, there were retailers just starting to invest in online, while those with more mature online businesses experienced “through-the-roof” increases in online sales and invested heavily in dot-com. “They will have to make adjustments,” as the rate of online sales gains, industrywide, mediates.
“There are pink slips going out,” said Craig Johnson, president of Customer Growth Partners. “Along with what we just saw at Kohl’s, I expect more of the same from other department stores and in apparel specialty. We anticipate labor force optimization. We are at the beginnings of it.”
Johnson suggested there were clues last year that cutbacks would occur. “The way seasonal workers are hired, they are identified, recruited and trained, and not necessarily deployed. Not all of these people were deployed” during the holiday 2022 season. “That meant that labor-hour issues were shrinking as the year was wrapping up. And this year, we’re not just seeing the exit of seasonal workers, we are seeing the beginning of some regular employees at the corporate level and at the frontline store level starting to leave, but not at all companies. It’s not a tidal wave.”
Johnson also said retailers are increasingly implementing self-service checkout to lower the payroll. The trend has been evident at Home Depot and other big-box retailers, as well as at many pharmacies, food retailers and even certain smaller specialty stores like Five Below, Johnson said.
“I don’t think there’s a strong correlation between what you have been seeing in the tech sector, with layoffs among highly skilled, high-paying roles, to the retail sector,” said Aaron Sorensen, chief behavioral scientist at Lotis Blue, a management consulting firm, when asked if the wave of layoffs seen in tech and banking would also be seen in retailing. “There will be some spillover because of [slowing] consumer spending, with corporate executives and maybe some store workers affected. But there is not a lot of cost saving to be realized by cutting the frontline workforce,” Sorensen said.
“These workers are paid hourly. You can flex staffing and scheduling, but you won’t save a significant percentage of costs. Generally, the consumer is still [financially] strong,” though economists say consumers have been digging into their savings and running up credit card bills. “When retail companies are making workforce layoffs, store associates should be the last place to cut,” said Sorensen.
In October 2022, Lotis Blue surveyed 1,000 employees at 300 retailers, which generated its “Future of Retail Employees” report. It indicates that many retail workers last year became less inclined to leave their jobs due to pay increases and trepidation over the possibility of a recession. Sixty-five percent of retail employees responded that they intended to stay on the job, versus 59 percent in April 2022 when the study was also conducted. Also, 52.3 percent of those planned to stay with their employers for five years or longer. Nevertheless, the report also stated: “Even as the labor market has begun to stabilize since the peak of the ‘Great Resignation’ in April 2022, the demand for talent continues to be a key priority for retailers.”
“The popular myth is that pay is the number-one factor for staying on or leaving a job,” said Sorensen. “Actually, enjoyability is the number-one factor.”
Citing other findings from the Lotis Blue report, Sorensen said the number-two factor in deciding whether to leave or stay on the job would be whether employees liked working with their coworkers, followed next by the perception of job stability, and then, the level of stress on the job and other health factors at the workplace. However, pay, childcare arrangements and diversity are of increasing importance to workers, according to the study.
Retailing has had a notoriously high level of turnover and a reputation for low wages and long hours. Still, conditions have been improving in certain cases, leading workers to stay on their jobs longer. Walmart Inc., for example, on Wednesday unveiled wage increases and improved benefits, and other retailers, including Gap Inc. and Macy’s Inc., over the last several seasons have done the same to attract and retain workers in what continues to be a tight labor market, and possibly to also discourage union organizing.
Sorensen doesn’t see a major labor movement among frontline retail workers taking hold anytime soon. According to Lotis Blue’s research, 73 percent of the retail population is not unionized, and 14 percent of retail workers don’t know if they are unionized. “When we asked non-unionized employees if they would support a vote to unionize, 29 percent said ‘no,’ 32 percent said ‘yes,’ and 39 percent were undecided,” said Sorensen, who authored the “Future of Retail Employees” study.
Sorensen suggested that a lack of tech and digital talent has hampered some retailers from sufficiently advancing e-commerce and omni-capabilities. Instead, workers have in many cases opted for jobs at tech firms, which in some cases overhired.
“With the retailers I work with, we can’t find enough people in terms of digital and technical roles,” said Sorensen, though he believes that given the mass layoffs in tech in the past couple of months, retailers could pick up some talent. There’s opportunity for retailers to further personalization initiatives and customer intelligence, where tech talent is needed, he said. “Our industry has shifted to a digital-first mindset. That evolution will continue.”
On Wednesday, Kohl’s commented on how it was reorganizing parts of its organization “to drive greater efficiency in our operations,” a spokeswoman said. “These efforts, which primarily impacted marketing and merchandising teams, reorganized some leadership roles and positions, including the elimination of less than 60 positions. We put a great deal of planning into this decision and are offering a competitive severance package and outplacement services to all those affected. We appreciate the many contributions of the impacted associates and we thank them for their dedication and service to Kohl’s.”