Despite announcing job cuts months ago, many retailers are implementing fresh layoffs to cut costs and streamline their businesses.
Online furniture company Wayfair, which laid off 870 employees last August, is cutting 1,750 employees. Clearco, whose founder helps fund e-commerce businesses, is cutting his 30% of its workforce after laying off 25% of its workforce in July. Amazon is extending the cuts from 10,000 to 18,000. Stitch Fix is also cutting its workforce by 20% after laying off 15% of its workforce in June.
Together, their actions reflect common concerns about consumer behavior. The last two years, especially he said, have been strong for retailers in 2021, but now that consumers are holding back on spending, businesses are looking to close the gap. Partly driven by inflation, U.S. retail sales increased 9.1% in the 12 months from Q3 2021 to Q3 2022. to census data. But these changes didn’t happen overnight, and companies that haven’t changed their business enough along the way are in trouble, experts say.
Aaron Sorensen, partner at Lotis Blue Consulting, told Modern Retail: “Part of the math these retailers had was how much demand there would be and how many employees they would need to support it.”
Businesses need to stay on top of operating costs, among other factors. So, “Overall, as the macroeconomic situation becomes more and more challenging, if we don’t look at it, we lack the runway as an organization to respond to what’s in front of us,” said Matthew Katz, managing his partner at SSA & Company, said. “I think what you’re looking at is an organization that didn’t adjust their plans along the way and is currently making very quick and tough adjustments.”
One indicator of this is companies with a high ratio of selling, general and administrative expenses (SGA) to sales. For example, Stitch Fix reported that in his three months ending July 30, 2022, he made $481.9 million in net earnings. SGA was 60% of that at $291.3 million. Stitch Fix’s SGA for the three months ended July 31, 2021 was $244.7 million, approaching 43% of total revenue.
Meanwhile, Wayfair reported net revenue of $2.84 billion for the three months ending September 30, 2022. Its sales, operating, technical, and administrative expenses are 23% of that, at $656 million, compared to his $497.6 million for the three-month period Sept. 30, 2021.
E-commerce has also slowed compared to the early days of the pandemic, and businesses that rushed to hire workers to meet demand are now having to recalculate. Niraj Shah, CEO of Wayfair, a company looking to save him $750 million in annual costs through cutbacks, said, “In hindsight, like our tech peers, spending has skyrocketed over the past few years.” We expanded it too much,” he admits. Amazon CEO Andy Jassy admits the company’s global workforce has increased by nearly 75% of his during the pandemic, admitting Amazon has “expanded hiring rapidly over the past few years.” . Amazon also purchased a large amount of fulfillment infrastructure that it no longer needs in 2020 and 2021. Meanwhile, Wayfair added capacity in Germany and expanded its logistics operations in Asia and Europe.
In addition to the above, there is also a domino nature of layoffs at this point, said Jason Goldberg, Chief Commerce Strategy Officer at Publicis Groupe. “People follow mates,” he said. “When these companies announced these layoffs, investors generally rewarded them for it…their stock prices went up. I have been given permission to say that I intend to do so.”
However, making a few cuts can damage not only your employees, but your company as well. “There’s a saying, take a bite of an apple,” Katz said. “The first adjustment should be most or all of what’s going on. It’s a really difficult situation for management to make multiple adjustments. The team quickly loses faith in the message.”