Gap Inc., a leading apparel retailer, recently announced its decision to lay off 1,800 employees in a bid to cut costs amid mounting concerns of a recession in the United States. This move comes as the company faces challenges such as slowing demand for its apparel and outdated inventory at its Old Navy brand. The current round of job cuts is expected to be larger than the approximately 500 corporate roles that Gap eliminated in September.
As of January 28, 2023, Gap had a global workforce of around 95,000 employees. The layoffs will primarily impact the company's corporate workers, including those in its international sourcing division and San Francisco headquarters. This downsizing trend has been observed across various American firms, including tech giants like Meta Platforms Inc and Alphabet Inc, as well as consumer companies like Clorox Co and Wayfair Inc.
"To mitigate employee risks, it is crucial for retailers to consider the potential negative effects of layoffs on their remaining workforce. Studies have shown that post-layoff, employees who retain their jobs often experience a decline in performance and engagement. Layoffs can also lead to increased turnover, as top performers may seek opportunities elsewhere over fears they may be next. To mitigate these risks, retailers should approach workforce reductions with caution and transparency." says Retail Expert, Jeanel Alvarado.
Gap expects to incur pre-tax costs of about $100 million to $120 million as a result of the workforce reduction, with employee-related expenses accounting for approximately $75 million to $85 million. The layoffs are anticipated to be completed by the end of the first half of fiscal 2023.
The company reported a bigger-than-expected fourth-quarter loss in March and forecasted 2023 sales below estimates. Consumers, particularly those in the lower- to mid-income bracket, have reduced spending on non-essential items, which has negatively impacted sales across all four of Gap's brands in the fourth quarter.
Alvarado states that "Gap's decision to lay off thousands of employees serves as a reminder for other retailers to continually evaluate their operations and adapt to changing consumer preferences and market trends. In an era where online shopping has become increasingly popular, brick-and-mortar retailers must find ways to stay relevant and competitive. This may involve investing in e-commerce capabilities, reevaluating product offerings, or rethinking store layouts and designs."
Gap is currently undergoing a CEO transition after Sonia Syngal stepped down last year. Executive Chairman Bob Martin is leading the company on an interim basis. As Gap navigates these challenging times, the company aims to streamline its operations and improve its financial performance through this significant workforce reduction.
