Layoffs: Who’s Getting Hit?

It’s as sure a sign as any that catalogers are battling rising costs, slower sales, and faltering consumer confidence: mass layoffs.

It started last fall, when general merchandise giant Fingerhut issued more than 2,000 pink slips, laying off more than 20% of its workforce. In January, multititle mailer Hanover Direct let go of more than 10% of its staff — 285 workers in all — as it closed several catalogs. Then in February, $25.3 billion manufacturer/marketer Dell Computer Corp. laid off staff for the first time in 17 years: 1,700 employees, or 4% of its workforce.

Reading tools and gifts cataloger Levenger also announced its first-ever layoffs in February. The Delray Beach, FL-based company, whose sales are estimated at more than $50 million (though the company won’t reveal the amount), let go of 24 people — or 8% of the company’s workforce.

Meanwhile, women’s apparel cataloger Coldwater Creek in February laid off 8% of its staff — 160 employees — at its Parkersburg, WV, and Sandpoint and Coeur d’Alene, ID, operations facilities. The $323.2 million Coldwater also let go of 23 employees, most of them in corporate positions, at its Sandpoint headquarters. And in early March, Rye, NY-based Lillian Vernon Corp. laid off 12% of its salaried staff.

Fingering the culprits

Minnetonka, MN-based Fingerhut says its layoffs were primarily related to the company’s bad-debt problem. The Fingerhut division of the $1.87 billion catalog unit of Federated Department Stores early last year shifted from offering customers an installment credit plan to revolving credit, which caused the company to lose $400 million in unpaid credit card payments from delinquent customers.

But other mailers blame their staff cuts on the economy and sluggish sales. Dell spokesperson Mike Maher says the marketer’s job cuts are directly related to the softening economy and its affect on the Austin, TX-based company’s business model.

“We have a leaner cost structure than our competitors,” Maher says. “These cuts were necessary for us to continue being a low-cost provider.” Dell’s layoffs mostly affected marketing, administrative, and product support employees in its facilities in Round Rock and Austin, TX. Several executives were also let go, but Maher won’t reveal how many.

Coldwater Creek found that sales of full-price merchandise nosedived in January and February, much to the company’s surprise. After all, fall and holiday sales had been strong for Coldwater. Revenue for its fiscal third quarter, ended Nov. 25, was up more than 36% from the previous year’s.

“We had no reason to expect full-price sales to change, but they did,” says Coldwater spokesperson David Gunter. “We saw a dramatic drop-off early this year. But we staffed up for strong January sales and had planned on hanging on to most, if not all, of our holiday staff in our call centers and distribution centers. This was all predicated on our strong sales performance during the past 12 months — including January and February 2000.” In addition to the layoffs, Coldwater plans to reel in all discretionary spending as it monitors national economic conditions during the year.

Too many people, too few sales

Like the most of the others, Lillian Vernon blames softening sales and the weakening economy for its layoffs. “In tough times and a very competitive retail environment, every company has to run as lean as possible,” says spokesperson David Hochberg. “So unfortunately the layoffs were necessary, especially considering the fact that our business is highly seasonal.” He adds that although the company has no further layoff plans, he won’t rule them out either.

At Levenger, “positions were eliminated due to companywide restructuring,” says president/CEO Steve Leveen. He notes that because the company grew rapidly during the ’90s, “we covered up a lot of inefficiencies.” Leveen notes that the layoffs contradict the direction Levenger was going prior to last November. “Just last year, we hired a senior vice president of operations/CFO, a senior vice president of marketing, a director of fulfillment, and a chief information officer,” plus 10 senior executives in merchandising, information technology, operations, corporate sales, and retail.

Catalog Layoffs at a Glance
COMPANY NO. OF LAYOFFS
(% OF WORKFORCE)
WHEN
Lillian Vernon Corp. 40 (12%) Mar. 2001
Dell Computer Corp. 1,700 (4%) Feb. 2001
Coldwater Creek 160 (8%) Feb. 2001
Levenger 24 (8%) Feb. 2001
Yankee Candle Co. 455 (15%) Feb. 2001
Hanover Direct 285 (10%-plus) Jan. 2001
Sonic Foundry 157 (40%) Dec. 2000
Fingerhut Cos. 2,000-plus (20%) Oct. 2000-
Jan. 2001

But the drawn-out election in November and December, Leveen says, caused sales shortfalls that led to the recent layoffs. “Because consumers were so glued to news reports during the Florida recount, they didn’t have time to shop through catalogs until after the election was decided.” Levenger got stuck with excess inventory and was forced to mail its first-ever sale catalog in March. Leveen also blamed the January postage increase as another reason for the need to cut costs and reduce staff.

Putting together the severance package

As fragmented and diverse as the catalog industry is, there’s no one tried-and-true method to handle layoffs, notes Ken Malek, president of Yardley, PA-based direct marketing recruiter Ken Malek Associates. “For the most part, [in the catalog industry] we’re not dealing with the Intels and Intuits and Hewlett-Packards of the world,” he says. “So most catalogers probably don’t see a need to provide outplacement services or unusual severance packages.”

Case in point: Coldwater Creek offered standard severance pay to the workers it laid off, but “we didn’t go to the extent of offering outplacement help,” Gunter says.

On the other hand, the considerably larger Dell Computer not only offered a severance package that including two months of pay, benefits, profit-sharing, and year-end bonuses where applicable, but it also provided outplacement service. “We contracted with local recruiters in Austin to help try to find people new jobs or career counseling,” Maher says.

Malek notes that in addition to larger-size catalogers, such as Dell, if mailers associated with high-profile organizations, such as National Geographic, Art Institute of Chicago, and Winterthur Museum, were to go into similar layoff modes, they’d probably also offer outplacement services. “These organizations are supposed to be compassionate,” he says. “So even if their relatively small catalog divisions were to lay off only, say, 10 people, they’d still give the outplacement service.”

None of the mailers contacted anticipate further job cuts later this year. Says Coldwater Creek’s Gunter: “We feel this reduction will be sufficient to helping us reach our goal of maintaining an even keel even in the face of lackluster sales in women’s apparel.”

It’s not likely that more widespread layoffs will hit the catalog industry as a whole. “I don’t see a gloom-and-doom picture out there,” Malek says. “Layoffs to this point have been very concentrated in high-tech firms and the downfall of the pure-play online companies.”

Instead, Malek says that catalogers might decide “not to add a new position in these questionable times. They may hold off to see what’s going to happen.”

For instance, if a cataloger launches a spin-off book, Malek says, “the people up the ladder may have to be more hands-on and handle, say, the marketing for the new book rather than hire a new person. It’s a more austere approach to conservative expansion.”

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