Zalando is the last name in fashion retail to respond to today’s “challenging” landscape by eliminating jobs.
The German retailer will “let go” of some its employees, co-CEOs Robert Schneider and David Gentz wrote in a staff memo Tuesday that was light on specifics and admitted “we don’t have all the answers yet.”
People working in Zalando‘s logistics and customer service centers as well as 12 outlet stores in Germany don’t have to worry about their jobs, top brass said, though layoffs will affect “many parts” of the Berlin-based platform, high-ranking leaders included.
Some workers could be reassigned to other roles internally while a “voluntary leave program” might also come into play. The co-chiefs said belt-tightening was the best way to survive the next chapter now that “pandemic tailwinds” were a thing of the past.
“Instead of a big company with a big company structure and mindset, we need to be a big company with a small company structure and mindset. An entrepreneurial company that embraces simplicity, pragmatism and frugality,” they wrote without revealing how many of Zalando’s roughly 17,000 employees will be affected. “Those principles will drive innovation and equip us to invest into our strategic priorities and shape the future of European e-commerce.”
Employment trends are the talk of 2023 so far as employers across sectors are cutting jobs by the hundreds and thousands. Amazon ditched 18,000 jobs, on top of the Microsoft and Google layoffs that eliminated a combined 22,000 roles. Saks.com already dropped 100 positions while Hudson’s Bay plans to make some adjustments in the e-commerce department. Boohoo plc and Asos find themselves trimming payroll too. And after all of that, The RealReal on Thursday said it’s shedding 7 percent of its staff, affecting 230 employees. The luxury resale company will close two flagship stores in San Francisco and Chicago, two neighborhood stores in Atlanta and Austin and a pair of luxury consignment offices in Miami and Washington, D.C., while shrinking its office footprint in San Francisco and New York.
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Jobs in retail are getting harder and harder to come by. A Kohl’s reorg last month cut 60 corporate headquarters jobs. Bed Bath & Beyond‘s mass store closures mean pink slips for any brick-and-mortar staff who can’t find work at one of the chain’s other stores in the area. Even worse, the retailer’s bout with insolvency north of the border is closing all 54 Bed Bath & Beyond locations and 11 BuyBuy Baby stores in Canada, vaporizing 1,400 jobs. And last week, luxury retailer Neiman Marcus said it was cutting nearly 5 percent of its 10,000-strong workforce. About 100 will be let go at corporate, while the remaining 400 would come from stores and other components of Neiman’s business. The luxury department store company, which also made some leadership changes, said last week that the “strategic realignment” would help the firm focus on “high value luxury customer growth.”
In the U.S., weekly jobless claims fell 1,000 earlier this month to a seasonally adjusted 194,000, according to data from the U.S. Labor Department. That was below the 200,000 first-time filers economists expected. One explanation for the lower number could be that some people haven’t actually been laid off yet or they’re getting severance packages. Neiman plans to cut off future payments for executives at the vice president level if they land another job shortly after the layoff, or claw back payments if it finds out after the fact, the New York Post reported last week. A Neiman spokeswoman declined to comment on details about the severance package.
Meanwhile, continuing unemployment claims—people already receiving unemployment benefits—jumped by 16,000 to nearly 1.7 million.
All of this comes as the U.S. inflation rate slowed in the closing months of 2022, falling in December for the sixth straight month and dropping the year-over-year rate to 6.5 percent. But so-called disinflation could be coming to an end.
Fitch Ratings’ senior director David Silverman believes retail sales are in for a tough few months as consumers put more of their dollars toward services like travel and leisure instead of durable and discretionary goods. Wells Fargo retail analyst Ike Boruchow sees other headwinds on the horizon, such as lower tax refunds, cuts in the Supplemental Nutrition Assistance Program, and a slowdown in store foot traffic. He says first-quarter earnings are likely to bring a wave of retailers downwardly revising their earnings guidance.
Inflation
A closer look at prices offers insight into what else is happening in retail and manufacturing.
On Thursday, the U.S. Department of Labor said the Producer Price Index (PPI) rose 0.7 percent for the month, representing the biggest increase since June. Economists’ consensus estimate was 0.4 percent, following a 0.2 percent decline in December. Representing prices that producers pay on the open market, the PPI’s increase indicates that inflation rose at the wholesale level.
Thursday’s report followed Tuesday’s Bureau of Labor Statistics data for January indicating that the Consumer Price Index (CPI) rose 0.5 percent, or up 6.4 percent year-over-year, seasonally adjusted. While the CPI report indicated a modest slowdown from December’s 6.5 annual rate, the monthly inflation rate was higher than expected at up 0.5 percent from December’s 0.1 percent uptick. CPI data showed that apparel prices rose 0.8 percent in January.
A bit of inflation usually allows retailers to raise prices, pad their gross margins, and bump up profits. But consistently high inflation will do more harm that good in retail. As consumers feel the price pinch, they usually get cautious with their spending, which is likely what’s spooking companies into large-scale layoffs right now.
Wells Fargo economists Tim Quinlan and Shannon Seery believe the Federal Reserve’s interest rate tightening cycle will meaningfully affect companies by the middle of the year.
“In 2022, thanks to a tight labor market, consumers still felt confident about their job prospects, and perhaps on that basis felt no qualms about spending down excess savings or increasingly relying on credit,” they wrote in a research note. “But increased concern over job prospects amid corporate belt-tightening in 2023 could lead consumers to pull back on spending. Once layoffs ensue, labor market slack will also weigh on nominal wage gains and further dampen household consumption, ushering in economic contraction.”
Early indicators
The year started with people feeling jittery about the state of the economy and their own personal circumstances.
A study from Real Estate Witch (REW) showed that almost half of people in the U.S., at 44 percent, say the economy is worse now than the Great Recession back in 2008. And despite post-pandemic job growth and higher wages, high inflation and supply chain disruptions coupled with geopolitical conflicts have many pondering the possibility of a recession.
The REW study found that 75 percent are worried about a recession this year, while 69 percent said they believe the economy is already in a recession. While the study noted that results may be “shaped more by fear than facts,” it also found that 87 percent of respondents are preparing for a recession, with 44 percent stating that they are saving more money and cutting back on non-essential spending. What’s more, more than 55 percent said that they’d lose everything if there was a recession, according to REW.
For now, consumers have been able to shrug off price increases. U.S. retail sales rose 3 percent in January to $697 billion, the biggest increase in two years. The U.S. Census Bureau data is seasonally adjusted, but unadjusted for price changes. Department stores saw the biggest gain at up 17.5 percent to $11.98 billion. A relatively strong jobs market has buoyed spending but that could fall apart in the near future.