Tech companies continue to lay off workers. Is Fashion Next?

Big tech has already laid off more than 100,000 employees globally this year, according to, with Chinese media giant Tencent and buy-now-pay-laten firm Affirm among the latest to cut staff.

Fears that cuts at Microsoft and Amazon would lead to job losses in the wider economy have so far proved unfounded. Despite warning signs that the economy is headed for a period of slow growth or even recession, the U.S. unemployment rate fell to 3.4 percent in January, a 53-year low.

However, fashion has not been completely immune to the need to cut costs. Neiman Marcus, PVH, VF Corp., Everlane and H&M are just a few of the retailers that have announced layoffs in recent months. Many cited economic uncertainty as the main reason for the job cuts, as consumer spending began to decline in the second half of 2022 (although US retail sales unexpectedly rose in January).

Retailers dependent on online sales are worse off as they also offset the post-pandemic pullback in online shopping. Canadian e-tailer Ssense, for example, laid off 138 employees, or 7% of its total workforce, last month, while RealReal said it would cut 230 jobs last week, or also about 7% of its workforce. potential.

For fashion companies bracing for a year of stagnant or declining sales, eliminating non-core corporate salaries and closing underperforming stores are relatively easy levers.

“Many brands and retailers expect 2023 to be a very quiet year in terms of growth,” said Neil Saunders, chief executive of GlobalData, a consultancy. “When people predict reductions, all it takes is a cost reduction to match [muted] demand.”

Course correction

For some e-commerce companies that have cut jobs in recent months, it was a matter of adjusting for an aggressive hiring spree in 2021, when tech valuations and growth expectations were soaring.

Last July, Shopify announced it would cut 10% of its workforce, or 1,000 employees. CEO Tobias Lütke said in a note at the time that he had made the wrong call to expand the platform in 2020 in response to what turned out to be a temporary uptick in online shopping.

For others, the layoffs are a necessary step to protect profits at a time when sales are slow.

The first signs of a slowdown appeared last summer, when the post-pandemic growth streak — fueled by pent-up demand, high savings and joy about opening the world again — began to run out of steam. Second-quarter sales for companies such as PVH and VF Corp. were down year-over-year, a decline that carried over into the holiday season for many brands.

Across the board, retailers have lowered their forecasts for 2023 as they face not only declining consumer confidence but also rising operating costs, including raw materials and shipping. They also had to discount more products to reduce inventory overhang, hurting margins.

“With cost pressures increasing and demand weakening, the bottom line is going to come under a lot of pressure and many retailers are trying to avoid that,” Saunders said.

Barring an economic miracle, more layoffs are likely to come. Public companies face pressure from shareholders to cut costs. Large, established retailers can attract activist investors who will push for even deeper cuts, while startups that have seen their post-IPO share prices sink are scrambling to move up their timelines for profitability.

“In many cases, the layoffs were really the right decision,” he added. “During the 2021 boom, many retailers were quite hesitant to hire and based it on future forecasts of strong demand that is now waning.”



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Written by Diana Pearl.

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