Retailers beset by cutbacks
Retailers beset by cutbacks
Since the new year rang in just five weeks ago, a parade of multichannel merchants have announced staff reductions, catalog and store closings and other cutbacks.
The worsening economy was a primary reason for some — but not all — of the announcements. And recent revelations, such as flat consumer spending in December, rising inflation rates and a tumble in overall US employment rates, suggest that the end is not in sight quite yet.
Pointing to a need to streamline its multichannel operations, JCPenney said last week that it would eliminate 150 staff positions and combine two separate merchandising and marketing organizations for its retail and direct businesses.
The move follows an announcement earlier this month that in March, JCPenney will lose one of its call centers that handles incoming catalog orders and employs approximately 275 people.
Quinton Crenshaw, manager of public relations for JCPenney, insists that planning for the restructuring started before the current economic downturn. “It takes time to plan a realignment,” he said. However, JCPenney is still approaching 2008 more conservatively in its plans.
“We want to be able to leverage our expertise and deliver a more consistent and coordinated customer experience,” Crenshaw continued, explaining that products on sale in store will also be available in the catalog or online.
The move will also enable JCPenney to take greater advantage of the success it has had with its Web site, its fastest growing channel.
“This allows us to leverage that strength in a more enterprise-wide approach,” Crenshaw said.
Eddie Bauer Holdings Inc. was also looking to make its business more competitive when it announced plans to cut its corporate staff by 16% last week. “We'd be doing this whether the economy was good or bad,” said Tom Helton, SVP of human resources at Eddie Bauer.
The company discovered it was putting 41% of its revenue into overhead costs while the competition only puts between 35% and 37%. As a result, Eddie Bauer is looking to trim between $25 million and $30 million in overhead costs this year; the corporate cutbacks account for a portion of this plan.
However, while back office operations have been reduced to “mission critical” levels, “these moves haven't affected the revenue-generating and customer-facing portions of our business,” Helton said.
Already, Eddie Bauer has seen the momentum beginning to shift in its favor as it engages in a turnaround strategy. For the fourth quarter, Eddie Bauer reported net merchandise sales increased 3.4% for a total of $378 million and comparable store sales increased 4.8%. Sales from the company's direct channel increased 9.7%.
Several other recently announced cutbacks were more directly tied to the economy. Last week, Home Depot said it would eliminate 500 jobs, or 10%, from its headquarters staff due to the tough economic environment.
Rising costs were cited as the reason why Lillian Vernon cut approximately 25% of its staff and will be reducing its catalog circulation this year. The company endured rate increases last year from FedEx and the post office that had a combined cost of $8 million, according to Michael Muoio, president/CEO at Lillian Vernon.
Even the $150 billion economic stimulus package recently announced by the Bush administration — which will put tax rebate checks into the hands of middle- and low-income Americans — may not be enough to stem the tide of the cutbacks. The plan calls for $600 rebate checks to go to individuals who make up to $75,000 per year. Families that make up to $150,000 per year will receive $1,200, with $300 added for each.
“That's not going to help,” Muoio said about the stimulus plan. “It's taken us 25 years to get into this mess and it's going to take a long time to get out of it,” he continued, adding that putting an extra few hundred dollars in consumers' pockets won't help when the national average price for a gallon of milk is $3.50.
Consumers have held up the economy by continuing to spend for years, but confidence has waned, according to Wendy Liebmann, president at WSL Strategic Retail, which conducts an annual consumer survey on shopping trends.
“What finally did [consumers] in was the subprime mortgage fiasco — that was the last straw,” she said.
As a result, according to Liebmann, consumers feel high gas and mortgage prices are inevitable and seek to control their other spending. Consumers are cutting back on the number of shopping trips they make each week, she added.
Recognizing this, retailers are working hard to get people into stores. Wal-Mart, for example, recently announced significant price cutbacks in recognition of the tough economic times. The discount retailer is one of the few that beat analysts' expectations, posting a 2.4% rise in comparable store sales. Net sales for the five weeks ended January 4 were $46.6 billion compared to $43 billion during the previous year.
Retailers are also doing what they can to make it easier for consumers to shop by aggressively marketing their online options. “I've seen a huge amount of post-Christmas online marketing going on,” Liebmann said.