Target Issues Layoffs: At Least 1,000 To Lose Jobs

Target to cut workforce, issue layoffs
Target to cut workforce, issue layoffs

Target has announced that it will cut 9% of its headquarters staff and close a Arkansas distribution center,  which includes 600 employees and 400 open positions, according to a statement issued by the company. These changes will be effective immediately.

Target will also close a distribution center in Arkansas, which employes another 500 people, later in the year.

“We are clearly operating in an unprecedented economic environment that requires us to make some extremely difficult decisions to ensure Target remains competitive over the long term,” Gregg Steinhafel, president and chief executive, said in the release.

Target has taken other steps to cut costs as well, including salary freezes for senior management, suspending share repurchase activity, tightening credit card underwriting and granting, improving store productivity as well as cutting back on opening new stores.

This follows months of lower-than-expected sales at Target stores, as the retail industry continues to struggle. This, combined with a poor outlook throughout 2009, the company claims its actions are a conservative approach to planning.

From the release:

Headquarters employees affected by the announcement will continue to receive their full pay and benefits through April 1, after which they will receive a comprehensive separation package based on their years of service. As part of that package, Target also will provide these employees with 12 months of continued Target health care benefits in addition to 12 months COBRA benefit, and outplacement support to assist them in transitioning to their next position. Little Rock distribution center employees will be offered positions at other Target distribution centers, or will receive comparable severance.

As a result of these actions, the company expects to record a charge of approximately 3 cents per diluted share, the majority of which will occur in the company’s 2008 fourth quarter. The company believes the annualized benefit resulting from these actions will exceed the charge.

25% of Retailers May File For Bankruptcy Following Poor Holiday Shopping Season

The economic death just keeps spreading. After hitting the financial industry, the housing industry and the car industry, the retail industry could very well collapse in the coming months. Following a dismal holiday shopping season and riding the coattails of highly publicized bankruptcies at Linen’s ‘N Things, Circuit City and KB Toys, as many as 25% of retailers may file for Chapter 11 protection in the first quarter of 2009.

In comparison, only 4-7% of retailers were expected to file for bankruptcy protection this time last year. Retail has long had the reputation of being one of the hardest businesses around, and the industry normally operates with many firms on the verge of bankruptcy. The current numbers, however, are unprecedented.

The Wall Street Journal reports that the first retailer to go under during the post-holiday season could be Goody’s Family Clothing, Inc., an apparel retailer in the Southeast with 287 stores. The company emerged from bankruptcy court in October, had a weaker than expected holiday season and may be seeking outside financing or loans. Goody’s is reportedly trying to avoid a potential liquidation by seeking outside help.

Goody's Family Clothing May Be Forced To File For Bankruptcy Protection
Goody's Family Clothing May Be Forced To File For Bankruptcy Protection

Many retailers that do not liquidate will likely trim inventory and cut suppliers, causing a ripple effect to other industries. Weaker manufacturers, small brands and cash-strapped fashion labels may fail even if the retailers themselves do not.

“We will have a lot fewer stores by the middle of 2009,” Nancy Koehn, professor of business administration at Harvard Business School, told the Wall Street Journal. “It’s happening very, very quickly because of the financial crisis and the recession.”

Retail Prices Fall in November

The U.S. Department of Labor reported that consumer prices fell 1.7% in November from the month before, the fastest drop on record. In part as a result of tumbling oil prices, which fell 17% over one month due to plummeted demand for gasoline, retailers and auto dealers were cutting prices throughout the month of November to bring back wary customers and boost consumer spending, which is also falling.

Vehicle sales tumbled 2.8%, as consumers face higher hurdles for auto loans. Sales at gas stations fell almost 15%, after a sharp drop in fuel prices.

The dip in consumer prices in November continued the October trend, when prices drop approximately 1%.

Sale: Prices Dropped as Retailer Tried to Boost Consumer Spending
Sale: Prices Dropped as Retailer Tried to Boost Consumer Spending

As the United States generally holds a steady inflation rate of about 2% each year, the drop in prices is cause for concern among economists.

“All the factors which had contributed to the 2 percent-plus core rate in recent years — robust demand growth, the weak dollar and rising commodity prices — are now running rapidly in reverse,” Ian Shepherdson, United States economist at High Frequency Economics, wrote in a note, “and it is just a matter of time before core inflation starts to head south.”

As prices continue to drop and the housing market continues to stall, some economists are warning of deflation.