Amid market concerns regarding disappointing corporate earnings reports, fashion apparel retailer Gap (NYSE:GPS) compounded anxieties with a workforce reduction announcement. According to The Wall Street Journal, the cuts will eliminate hundreds of jobs in the corporate realm to align with a broader restructuring effort. Notably, according to insiders, the Gap layoffs may be larger than the one announced in September.
At the time, the retailer slashed roughly 500 corporate positions. That round focused primarily on Gap’s main offices in San Francisco and New York, representing a component of a broader initiative to save approximately $250 million annually.
Per the WSJ, the leaders of the company’s individual brands — Gap, Old Navy, Banana Republic and Athleta – have essentially been conducting a review of corporate efficiencies. Ultimately, the insiders stated that the process sought to strip out layers of management to accelerate decision-making.
“Our goal is to flatten the organization, increase spans of control to create more robust roles and individual empowerment, and decrease layers to remove bottlenecks and make better, faster decisions,” Gap Chairman and interim CEO Bob Martin wrote in a memo to employees last week.
Last month, management signaled the Gap layoffs when it announced that it identified $300 million in cost savings.
Gap Layoffs Occur Amid Rising Recession Fears
Since the skyrocketing of inflation last year, job cuts have accelerated, predominantly in the technology sector. However, what has many market observers worried is that the latest pink slips cut across myriad industries. With the Gap layoffs in the mix, the broader workforce reduction points to an anticipation of a slowing economy.
As Reuters pointed out, Gap joins others that have announced headcount reductions in recent months. Notably, social media giant Meta Platforms (NASDAQ:META) dominated headlines for its size and influence. However, other non-tech-related firms such as consumer goods specialist Clorox (NYSE:CLX) and furniture-focused e-commerce enterprise Wayfair (NYSE:W) also eliminated positions.
With consumers apparently cutting spending on both discretionary goods and core necessities, the Gap layoffs add more pressure to the underlying enterprise. Essentially, even with the cuts, the company could face significant obstacles to growth and profitability. On Tuesday afternoon, GPS stock slipped 6%.
Still, blaming the red ink on economic woes alone wouldn’t be completely accurate. Amid supply chain woes, Gap’s Old Navy brand misfired on its inventory mix relative to actual consumer demand preferences. Also, Gap ended a partnership with Kanye West when the controversial hip-hop star terminated the agreement, citing a breach of contract.
Why It Matters
The Gap layoffs may not immediately change sentiment for GPS stock, which carries a moderate sell rating among analysts. With only one “buy” rating, the other individual assessments tally as four “holds” and four “sells.” However, the average price target is $11.17, implying an 18% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.