Do staff cuts really help in a recession?

The European fashion retailer, Zalando, has predicted a return to growth of up to 3% in H2 despite a 58% profit drop during Q2, which reportedly brought the company’s operating profit down to £64.7m from £153.3m in the same period last year. 

In light of these results, and in spite of the company’s optimism for the future, the latest news from the company detailed its intentions to cut back on the budget allocated to marketing in an effort to maintain as much of their workforce, in a means to shore up cash without cutting jobs. 

Zalando stated it was “adamant” it can avoid redundancies by making cuts elsewhere, in an effort to keep employment steady by the end of the year. The company’s efforts to keep its employees is thought to be due to Zalando’s increasing its workforce by a quarter to more than 17,000 employees as it recovered from the pandemic. However, co-chief executive, Robert Gents, did admit that the company had become “more cautious” in hiring as a result of the retailer’s profit slump. 

As sensible as this decision may sound, it is not at all “the done thing”, as many companies are already lunging towards staff cuts instead of figuring out other options. White Stuff, for example, has cut nearly 400 jobs so far this year, while Cotton Traders cut over 100 jobs despite record profits. 

As we get closer and closer to a recession, companies are reverting back to their old plan of minimising staff to minimise cost as they did during the 2008 financial crisis and the Covid-19 pandemic in 2020. According to a recent PwC study, layoffs are already “in the works” at a half of US companies, which can only mean that those working at their overseas franchises will suffer too, not just in the US. 

A very recent article by Tom Giddy in Forbes, Why Layoffs Should Be A Last Resort In Times Of Crisis, explained the disadvantages that come with redundancies, such as loss of morale, poor retention and productivity, as well as a skills gap among your remaining staff, which would affect the company’s bottom line and success. 

Giddy also cited some stats; according to Glassdoor, in the few weeks following the start of the pandemic, the number of company reviews mentioning layoffs had risen by 73%, while more recently Bamboo HR found that 86% of job seekers look at employee review sites before deciding where to apply for a job. 

Overall, it may be advised for companies to loosen their “profits at all cost” mentality in order to maintain the respect of their employees. This would come with humbler profit margins, but the other perks gained could have more long term benefits.