2024: A Year of Cost Cuts for Companies, Regardless of Profitability
In an unexpected turn of events, 2024 has become a year of cost-cutting for companies across various sectors, even for those that are turning a profit. From toy and cosmetics makers to office software sellers, executives have been announcing layoffs and other measures to slash expenses. This trend can be attributed to the pressure from investors and the need to adjust to changing consumer demand.
Executives are keen on demonstrating their commitment to managing budgets and increasing profits in an environment where businesses’ pricing power has diminished. Gregory Daco, chief economist for EY, explains that the cost of goods, inputs, equipment, labor, and even interest rates has seen a significant increase since the pandemic began. As a result, businesses are looking for alternative ways to navigate these challenges and boost their bottom line.
While many companies are cutting costs, there are exceptions. Walmart, for example, has announced plans to build or convert over 150 stores in the next five years, along with a substantial investment to modernize existing stores. Additionally, some banks have already made significant job cuts and are now awaiting interest rate cuts from the Federal Reserve to facilitate mergers and acquisitions.
However, the cost-cutting initiatives announced in the first few weeks of 2024 have already led to the elimination of tens of thousands of jobs and billions of dollars in savings. According to Challenger, Gray and Christmas, US companies announced 82,307 job cuts in January alone. Despite this wave of cost-cutting measures, companies have been able to drive profits higher without relying on significant price increases or sales growth.
The recent layoffs and closures have affected various industries. Tech companies such as Amazon, Alphabet, Microsoft, and Cisco have all announced staff reductions. Retail giant UPS has cut 12,000 jobs to save $1 billion due to softer demand. Media and entertainment companies like Warner Bros. Discovery, Disney, and Paramount Global have also implemented workforce reductions as part of broader cost-saving measures.
Airlines have also joined the cost-cutting wave. JetBlue Airways, which hasn’t posted an annual profit since before the pandemic, is deferring capital expenditures and culling unprofitable routes. Even profitable companies like United Airlines and Delta Air Lines have made adjustments to their services and operations to manage costs effectively.
The automotive industry has faced its own set of challenges. Automakers such as General Motors, Ford Motor, and Stellantis have reduced spending on electric vehicles due to slower-than-expected adoption. They have also implemented voluntary buyouts or layoffs to lower headcount and payroll.
Cost-cutting initiatives extend beyond layoffs and closures. Companies like Chipotle are testing automation technology to increase productivity and reduce costs. For instance, the fast-food chain is experimenting with an avocado-scooping robot and a robot that assembles burrito bowls and salads.
The need for cost-cutting measures can be attributed to the aftermath of the pandemic, which disrupted supply chains and consumer behavior. EY’s Gregory Daco explains that there has been a mismatch in supply and demand for goods, services, and even workers. Companies are now seeking to find an equilibrium and rebalance their operations.
Although there is some uncertainty about top-line growth in 2024, companies are taking advantage of the opportunity to reduce expenses and invest in newer technologies. As companies announce cost-cutting measures, it becomes normalized, creating a domino effect where layoffs beget layoffs. However, despite these challenges, the labor market remains strong, providing some optimism for companies.
Overall, while cost-cutting measures may be necessary in the current economic climate, they may also provide an opportunity for companies to streamline operations, increase profitability, and return value to shareholders. The ability to navigate these challenges effectively will determine which companies emerge stronger in the long run.
(Note: This article is based on information from various sources, including CNBC.)
