Will more firms follow suit?

Unilever (ULVR) has proposed a new organisation model and confirmed it will result in around 1,500 job losses globally – with Royal Mail also announcing plans to cut 700 jobs in the UK, leading to concerns that more layoffs will follow in the face of higher inflation. 

In a press release, consumer goods giant Unilever said there will be a reduction in senior management roles of around 15% and a loss of 5% of lower-level management roles, but said the cuts will not affect factory teams.

It comes as the business, whose shares have fallen about 13% over the past year, has been under pressure following a failed £50bn ($67bn) bid for a health division of GlaxoSmithKline, with some shareholders demanding changes, including activist investor Nelson Peltz.

As a result, the Marmite maker said it will move away from its current matrix structure and be organised around five distinct business groups: beauty and wellbeing, personal care, home care, nutrition, and ice cream.

Alan Jope, chief executive of Unilever, explained the changes.

“Our new organisational model has been developed over the last year and is designed to continue the step-up we are seeing in the performance of our business. Moving to five category-focused business groups will enable us to be more responsive to consumer and channel trends, with crystal-clear accountability for delivery. Growth remains our top priority and these changes will underpin our pursuit of this,” he said.

Royal Mail job cuts

Meanwhile, Royal Mail (RMG) also confirmed on Tuesday that it is expecting to make around 700 job cuts.

“As a next step, subject to consultation, we intend to further simplify and streamline our operational structures to ensure an improved focus on local performance, and devolve more accountability and flexibility to frontline operational managers. We are engaging with our unions on the proposals, which we expect will lead to a reduction of around 700 managers and deliver an annualised benefit of around £40m, with around £30m in full-year 2022-23,” the business said in a statement.

It also said that to deliver the programme it expected to incur a restructuring charge of around £70m in the fourth quarter of 2021-22, subject to consultation.

“The proposed changes in management structure are subject to statutory consultation with Unite/CMA, and additionally we will work with the CWU to ensure that the impact of any proposals remains in line with our existing agreements,” the organisation said.

Royal Mail also noted that the rising number of positive Covid-19 tests from the Omicron wave meant absence rates had remained elevated during its third quarter versus the prior year, and said absences increased over Christmas and into early January 2022 to peak at around 12%, which was double pre-Covid levels.

“This has resulted in increased costs and impacted quality of service in some areas of the country,” the group added.

Impact of inflation 

Royal Mail highlighted that cost headwinds were being experienced in both its European and North American businesses, driven by higher inflation rates and a limited pool of available line-haul and delivery drivers.

“Measures to protect margin through pricing initiatives and improved efficiency are being implemented,” it said.

Looking ahead, the business noted that there is still some uncertainty over the evolution of the Covid-19 pandemic and current Omicron wave, consumer behaviour and economic factors such as GDP growth and inflation.

Streamlining operations 

Which leads to the question: if inflation is impacting operations within Royal Mail, how many more companies might have to restructure and streamline to reduce costs in the face of it rising?

Capital.com asked Laura Hoy, an equity analyst at Hargreaves Lansdown, for her thoughts.

“It comes as no surprise that rising costs have been met with job cuts – the workforce is one of the largest costs businesses face and improved efficiency almost always means getting the job done with fewer boots on the ground. With that in mind, it wouldn’t be a shock to see more jobs on the chopping block in the months ahead if inflation continues to run higher.

“Sectors that have become digitised during the pandemic and those that are staring down a period of lower demand due to a pullback in consumer spending are the most likely to start trimming – retail and consumer goods companies the first to spring to mind,” she told Capital.com.

Mark Rossano, an energy analyst at Primary Vision, also gave his thoughts on this to Capital.com.

“Companies are trying to reduce costs wherever possible to help offset the spike in raw materials, supply chain, and wages. This is going to result in additional job cuts, and adjustments to their specific supply chains to manage elevated pricing around the world. Many companies are evaluating their supply chains and making adjustments that will result in job losses either internally or as a knock-on effect to their suppliers as they reduce purchases,” he said.

Primark job cuts

Meanwhile, Primark owner Associated British Foods (ABF) also announced plans last week to cut 400 jobs across its UK stores, as the group looks to overhaul its retail management team.

In a trading update, published on 20 January, it said that cost cuts had helped Primark absorb higher costs.

“The effect of inflationary pressure on raw materials and supply chain in this first quarter has been broadly mitigated by a favourable US dollar exchange rate compared to last year and a reduction in store operating costs and overheads. We are proposing to simplify our in-store UK retail management structure as part of our ongoing programme to improve the efficiency of our store retail operations,” ABF said.

Despite facing inflationary pressures, the retailer insisted it had no plans to put up prices.

Impact on unemployment rate

The impact on UK unemployment is an obvious cause for concern.

However, an international team of economists at The Indeed Hiring Lab said just last month that the UK labour market is strong.

“The UK labour market has staged an impressive comeback from the pandemic in 2021. Not only has unemployment stayed low, largely thanks to the furlough scheme, but demand for new workers has roared back to break new records in recent months. Rather than the previously feared spike in unemployment, as we head towards the end of the year the labour market is the tightest it has been in decades. The pressing issue instead is worker shortages,” it said.

“This is particularly true in reopened sectors that have been hiring in large volumes for months and where job postings are furthest above pre-pandemic levels. These are predominantly in-person, lower-paid sectors, and demand for staff in them has outpaced the supply of workers,” The Indeed Hiring Lab added.

However, it was noted that the labour market’s recovery is incomplete, with employment still more than half a million below its pre-pandemic level, largely reflecting a big decline in self-employment. 

Impact on monetary policy

Moreover, what does all of this mean for monetary policy? Laura Hoy further explained to Capital.com.

“Importantly, monetary policy doesn’t directly influence the unemployment rate. While lower rates encourage businesses to borrow more, which gives them the capital to continue signing pay cheques, it doesn’t guarantee lower jobless rates,” she said.

Mark Rossano also gave his concluding thoughts to Capital.com

“Inflation is a global problem that is going to force the hand of many Central Banks resulting in rates heading higher. The rate rising cycle is just beginning, and it is going to happen right as governments reduce stimulus creating a fiscal and monetary drag hitting simultaneously. Inflation is also outpacing wages, which is hurting underlying demand as consumers pare back spending. In turn, companies are struggling to increase wages as costs rise elsewhere, and their ability to pass on cost increases in pricing of final products comes under pressure as the consumer reduces spending or finds an alternative good to counter the rise,” he said.

“Rates are still very close to historic lows, and even if the Bank of England raises rates again, debt will still be relatively affordable. More concerning is inflation – which is the underlying reason for these efficiency drives. For now, the labour market is still relatively tight, and although the announced job cuts will loosen things slightly, they’re probably not enough to have a major impact at this stage,” Hoy added.

Read more: Credit Suisse (CS) profit warning unlikely to presage weak Q4 bank earnings

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