With layoffs, retailers aim to be safe rather than sorry (again)
The retail industry is trying to figure out its correct size.
Retailers, faced with sky-high demand from shoppers during the pandemic, spent the past three years ramping up their operations in areas like human resources, finance and technology. Now times have changed.
A public that rushed to buy all sorts of goods in the earlier parts of the pandemic is now spending less on merchandise like furniture and clothing. E-commerce, which boomed during lockdowns, has fallen from those heights. And with consumers worried about inflation in the prices of day-today necessities like food, companies are playing defense.
Saks Off 5th, the off-price retailer owned by Hudson Bay, laid off an unspecified number of workers late last month. Saks.com is laying off about 100 employees, or 3.5% of its workers. Stitch Fix laid off 20% of its salaried workers last month and closed a distribution center in Salt Lake City. Also last month, Wayfair said it would lay off 1,750 people, or 10% of its workforce, and Amazon started laying off 18,000 workers, many of them in its retail division. Bed Bath & Beyond cut its workforce as it tried to shore up its finances and prepare for a possible bankruptcy filing.
While it’s not unusual for major retailers to announce store closings and some job cuts after the blitz of the holiday season, the recent spate of layoffs is more about structural changes as the industry recalibrates itself after the rapid growth from pandemic-fueled shopping. And it accompanies broader worries about the state of the U.S. economy and layoffs by prominent tech companies.
“Retailers are really being cognizant of capital preservation,” said Catherine Lepard, who leads the global retail market for the 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 cash to get through that. For retailers that are struggling, it really means tightening the belt with some cost cutting.”
Sales during the all-important holiday shopping season were weaker than in years past, when growth hit record levels. December retail sales increased 6% from the same period last year, but that number was not adjusted for inflation, which was at 6.5%.
Department stores posted sizable sales declines. At Nordstrom, sales in the last nine weeks of 2022 decreased 3.5% from a year earlier, with the company noting that they “were softer than pre-pandemic levels.” Macy’s said its holiday sales had been on the lower end of its expectations.
The layoffs at certain retail companies are a sign that the industry is bracing for a slowdown and another change in how people shop.
“To mitigate macroeconomic headwinds and best position our business 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 made the difficult decision to part ways with associates across various areas of the business.” The layoffs affected divisions such as talent acquisition and supply chain.
Not all retailers are in a defensive crouch. For instance, Walmart announced late last month that it was raising the minimum wage for its store employees in a bid to attract and retain workers in a tight labor market.
Still, some retailers are becoming focused less on bringing in new customers — an expensive undertaking — and more on retaining those they gained during the pandemic.
“There’s a sense of conservatism,” said Brian Walker, chief strategy officer at Bloomreach, which works with retailers on their e-commerce and digital marketing businesses. “They’re still adjusting in many ways to this omnichannel retail environment and are probably seeing 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 weather a potential storm.”
That means fewer projects that require lots of money and time and more investments where a company can start seeing results quickly, Walker said.
Lepard agreed. “This isn’t the economy to really get creative and take on high risk,” she said. “There might be a pulling back of some of that innovation in future investment to make sure they’re pacing themselves.”
It’s also a moment for retailers to assess what e-commerce abilities they need. In the early months of the pandemic, online sales exploded as many brickand-mortar stores went dark. That growth has slowed. E-commerce traffic in North America declined 1.6% in the third quarter of 2022 compared with a year earlier, according to Bloomreach’s Commerce Pulse data. Conversion rates — the measure of someone’s buying an item after seeing it advertised — dropped 12% during the same period.
“This is where people overshot the runway,” said Craig Johnson, president of the retail advisory firm Customer Growth Partners, who has tracked the industry for 25 years. “This works like a ratchet. It might go up to 27%, but that’s going to normalize,” he added, referring to the share of total e-commerce spending for the first year of the pandemic, when many stores were grappling with COVID restrictions and closures.
When online spending was rising, many companies pushed to fill roles that could help them meet the demand. Now they have to adjust to a new reality.
The retail layoffs are an aboutface from 2021, when companies couldn’t hire front-line workers fast enough. After the initial jolt of the pandemic, which led many retailers to furlough or outright fire workers, many people received stimulus checks from the government. They wanted to spend that money, and when companies needed to ramp up in-store services again, they often struggled to find enough workers.
Recalling that difficulty might give some retailers pause before they lay off workers this time, Walker said. If a steep downturn never comes, or if there’s a sudden rebound in demand, companies don’t want to be stuck without enough employees.
But the next few months could be rough for retailers as profit margins shrink and revenue growth slows from what it was the past couple of years. In that kind of environment, investors generally like to see large companies take steps to cut costs. And once layoffs begin, a kind of industry groupthink can set in.
“Once a couple of companies start to do it,” said Peter Cappelli, a professor at the University of Pennsylvania’s Wharton School who researches management and human resources, “then it creates some momentum where then you’ve got to explain why you’re not doing what everybody else is doing.”