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Walmart Cuts Jobs—Is Gap Next?

Walmart slashed 200 jobs after saying last week that it expects profits to fall through the rest of the year.

A source familiar with the cuts said the layoffs focus on corporate jobs, though Walmart continues hiring in strategic areas.

Walmart spokesperson Jimmy Carter said the layoffs are part of the company’s efforts to update its structure and evolve “select roles to provide clarity and better position the company for a strong future.”

He added that the retailer continues to invest in “key areas,” including technology, health and wellness, supply chain and advertising sales, while “creating new roles to support our growing number of services for our customers, suppliers and the business community.”

The problems are piling up for retail.

Rising inflation, ballooning inventories and consumers feeling nickel-and-dimed on the spending front are conspiring to undo much of the progress retailers made last year when many sounded off on their newfound pricing power. After brands and retailers upped their MSRPs left and right, now companies across the spectrum expect promotions to come roaring back in the quarters ahead.

In fact, Target was one of the first big names to say it’s cutting back on home goods orders to get its overstuffed inventory back on track after a rare earnings miss. Walmart, too, had a difficult first quarter, putting some context around last week’s announcement that it’s resorting to steeper markdowns to sell clothing.

But now the situation is getting worse. Wall Street broadly expects more retailers will edit their third-quarter and full-year guidance when they report quarterly earnings this month.

The good news is that sellers should be in for a healthy back-to-school season as most people with school-age children see learning-focused spending as an untouchable line item in their budget. Growing kids need clothes that fit. However, brace for a budget-minded back-to-school shopper this year.

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Walmart isn’t the only name looking to cut costs by trimming payroll.

Shopify last week announced 1,000 layoffs, or 10 percent of its headcount. And sneaker and apparel brand Allbirds this week confirmed layoffs affecting 8 percent of its workers.

Who’s next?

Now-former CEO Sonia Syngal’s exit from Gap Inc. last month suggests that other changes could be ahead for the San Francisco clothing giant. The Gap, Old Navy, Banana Republic and Athleta owner expects to report zero or negative Q2 adjusted operating margins when it discloses quarterly results this month.

In the past, Gap has let workers go and closed stores when it needed to cut costs.

Gap did not respond to a request for comment by press time.

More hurt could be forthcoming for retailers. If full price is the best sale, then the first markdown is second-best. Each subsequent markdown hurts margins even more. And those consecutive markdowns might be necessary for retailers to clear mountains of product—a process that could extend well into next year and beyond.

Untamed inflation is especially troubling for the sector. The Federal Reserve’s move to raise rates again last week pressures consumers holding adjustable rate mortgages. But it’s going to hurt businesses too, now that commercial loans and any refinancing will come at a steeper cost.

Job cuts in any sector will have more people lining up for unemployment than for the cash wrap.

On Thursday, initial claims for first-time unemployment benefits totaled 260,000 for the week ended July 28. While in line with expectations, that total was close to the highest level reached last November.

Wells Fargo Securities economists Sarah House and Michael Pugliese said the claims number is “one of the clearest signs that labor market conditions have begun to deteriorate.” While continuing claims data suggests the U.S. is not in a recession yet, they concluded that the similarities suggest that the “start of a recession may not be far off.”