Fashion braces for more layoffs as brands rightsize teams

From VF Corp to Everlane, redundancies are rippling across the fashion industry. Recruitment experts and analysts break down what’s driving the cuts, and look at what’s ahead.

By Ezreen Benissan from Vogue Business.

Photo: Acielle/Styledumonde

Inflation is high, consumer confidence is low and job losses at fashion companies continue to mount. At the sharp end of the cuts are American retailers that are popular with Gen Z and millennial shoppers thanks to their relative affordability and savvy digital marketing, whose customers are rethinking their budgets.

In August, VF Corp, parent company of Vans, Supreme and The North Face, announced plans to axe 600 roles, including 300 that were vacant. It came soon after the company reported that its retail partners were taking a more cautious approach to buying. Then, in September, Tommy Hilfiger and Calvin Klein owner PVH Corp said it would lay off 10 per cent of employees, as high inflation hit spending on discretionary products. The cuts have ramped up already this year: on 5 January, personal styling platform Stitch Fix announced that it was laying off approximately 20 percent of its workforce, and US fashion retailer Everlane said it was culling 17 per cent of head office roles, plus some of its store staff.

Job cuts are expected to continue throughout 2023 as economic headwinds continue. Inflation slowed in the UK and US towards the end of 2022, but still remained high (at 10.7 per cent in the UK in November, and 6.5 per cent in the US in December). Economists and analysts are watching for signs the US will dip into a recession in 2023. “There will be more redundancies,” predicts retail analyst Richard Hyman. “People are expensive, and the market is shrinking because consumers are suffering from a squeeze in their household economics and they’ve got less money to spend.”

Younger shoppers are feeling the squeeze. The cost of living is the top concern among Gen Zs and millennials, above climate change, mental health, the risk of unemployment and personal safety, a 2022 Deloitte survey of some 23,000 adults in this age bracket across 46 countries shows. Almost half of Gen Zs (46 per cent) and millennials (47 per cent) live paycheck to paycheck and worry they won’t be able to cover their expenses.

He adds: “I think most retail markets will be looking to tighten belts because most are facing difficult economic headwinds. However, I think the UK and US will probably see more redundancies than most, reflecting greater over-capacity; not just too many stores but too many websites.” However, streamlining is not always a sign of distress, recruitment experts argue — in some cases, a rightsizing of teams was inevitable as consumer behaviour returns to the pre-pandemic norm.

A shift in shopping habits

The recent layoffs point to a wider shift in consumer behaviour in the wake of pandemic lockdowns. Fashion, retail and tech businesses experienced a significant surge in e-commerce sales, and strengthened their teams in those areas. That trend is now to some extent reversing. E-commerce sales in the US continue to grow, but at a pace closer to that seen pre-pandemic.

In fashion, companies are now trying to rebuild the right teams. “There was a lot of over-hiring during the pandemic because of so much activity going online,” says Karen Harvey, founder of the eponymous consulting and advisory firm, which finds talent for clients such as Adidas, Calvin Klein and Coach. “There are two things happening right now: economically, there’s an imperative to pare down a workforce, but at the same time, there’s an imperative to innovate and focus on areas that were not focused on before [such as the physical retail experience].” As companies reach the end of the financial year and begin to evaluate the workforce, certain roles or teams may appear redundant, she adds, which results in wide-spread layoffs as those teams may not “be the focus or emphasis of the strategy going forward”.

“Many of these companies benefited during a time when people were working from home and doing more online, but now that the consumer is more out in the world, we do have a reawakening in terms of how people want to engage and shop in more physical environments,” she continues, adding that these businesses are likely to invest more into the physical side of their business. Overall, she expects hiring to slow down as companies become more cautious and rethink their hiring practices.

Luxury is proving more resilient, says Paul-Christian Bassett, founder and CEO of Christian Bassett, an executive search consultancy recruiting for the likes of LVMH, Prada, Bottega Veneta and Burberry. “We haven’t seen anything like the level of redundancies in the luxury sector compared to the tech sector and some other areas,” he says.

Focusing on growth drivers

What is unfolding is a correction to what was initially projected, says Kristy Hurt, founder of the eponymous fashion and luxury focused recruitment consultancy, as well as The Co-lab, a networking community for brand professionals. “Business was booming, and executives were forecasting massive increases in hiring to accommodate for the huge growth,” she says. Now, brands are proactively cutting costs to remain profitable. “This sort of cautionary decision making feels more strategic rather than necessary at this point,” she argues.

After the pandemic e-commerce boom, fashion retailers are more aware than ever that online is not the “silver bullet” it was once thought to be, says analyst Hyman. “People imagined that if you trade online you don’t have rent to pay and it must be more profitable,” he says. “The reality is that returns are high and they eat into your profits. It’s not that easy to make money [by] retailing online.”

Hyman warns that a company restructuring “shows that costs are too high and revenues are too weak… disinvestment is quite often a symptom of distress”. However, other analysts, such as Streeter, argue that in some cases it’s recognised as a method to streamline the business, keep costs low and create effective business models by focusing on areas that are growth drivers for the company.

Growth in areas such as clienteling could also be the catalyst for new job creation, points out recruiter Hurt. “When these companies are investing in new categories, it’s because they feel that they can drive growth with these new areas of business, and in turn they’re hiring entirely new teams to support the businesses.”