Growing Concerns Over Deepening US Recession... Gap and Lyft Announce Layoffs in the Tens of Thousands (Comprehensive)

Amid growing concerns about a recession in the United States, major companies such as Gap and Lyft are also moving forward with layoffs.

Gap, a large fashion company headquartered in San Francisco, California, announced on the 27th (local time) that it will lay off 1,800 employees as part of a restructuring. Interim CEO Bob Martin stated in a press release that "this is a necessary step to restructure the company for Gap's future." This is an additional restructuring following the reduction of 500 employees last September.

This additional restructuring is interpreted as a decision due to continued poor performance. Gap recorded annual net losses for three consecutive years from 2020 through last year, and also posted a net loss of $273 million in the first quarter of this year. Interim CEO Martin explained, "We will restructure Gap by simplifying and optimizing the operating model, enhancing creativity, and providing better service in every aspect of the customer experience."

[Image source=Reuters Yonhap News]

Most of the layoffs will affect senior staff at Gap’s headquarters in San Francisco and New York, as well as senior employees at various stores. As of the end of January, Gap had approximately 95,000 employees in total.

Founded in 1969, Gap is well known not only for its eponymous flagship brand ‘Gap’ but also for Banana Republic, Old Navy, and Athleta. The Wall Street Journal (WSJ) reported, citing sources, that prior to the layoff announcement, brand leaders had been conducting extensive reviews aimed at eliminating management layers to speed up decision-making. The publication added that one of Gap’s goals is to create a consistent organizational structure across all brands.

On the same day, ride-sharing company Lyft also announced additional layoffs. Following the dismissal of 700 employees last November due to recession concerns, this time the company plans to expand the scale to lay off more than 1,000 employees, which accounts for 26% of its total workforce. Lyft also plans to reduce new hiring and eliminate over 250 open positions.

CEO David Risher stated in an internal email that "to overcome difficulties and return to profitability, we will significantly reduce our workforce," adding, "this is to create an organization that benefits the company, employees, and drivers alike." Unlike Uber, Lyft has struggled with business diversification, and its stock price has plummeted by 68% over the past year. Considering that the Nasdaq index and Uber’s stock price fell only about 3% during the same period, this decline is significant. Since the annual earnings announcement in February, Lyft’s stock price has dropped more than 35% due to poor future outlooks.

[Image source=AP Yonhap News]

U.S. cloud service company Dropbox also announced layoffs of 500 employees, representing 16% of its global workforce, on the same day. The company cited slowing growth and the need to restructure its business in response to the advent of the artificial intelligence (AI) computing era as reasons for the layoffs. Dropbox CEO Drew Houston said, "(Dropbox’s business) is profitable but growth has slowed," adding, "this is partly because the existing business has naturally matured, but also because the recent economic slowdown has created headwinds that pressure both customers and the business."

Southwest Airlines announced that it may reduce its hiring plans this year due to delays in aircraft deliveries from Boeing. Originally, Southwest planned to introduce 90 Boeing 737 Max passenger planes this year, but it is now estimated that only 70 will be available. Accordingly, the company confirmed that the hiring scale, which was expected to increase by 7,000 employees, will inevitably be adjusted.

While restructuring waves were mainly seen in big tech companies in the second half of last year, they have spread across the entire industry this year amid recession concerns. The U.S. first-quarter economic growth rate released on the same day fell to an annualized 1.1%, significantly below the initial forecast of over 2%. It is also sharply lower compared to the previous quarter’s 2.6%. The average annual growth rate of the U.S. economy over the 10 years before the pandemic was 2.2%.

This slowdown in growth is analyzed to be due to reduced investment in private companies and the real estate sector, which are highly sensitive to interest rates. Since March last year, the Federal Reserve (Fed) has been in a rate hike cycle and has raised the benchmark interest rate by 4.75 percentage points over the past year. This historic tightening has confirmed that high interest rates are burdening the overall economy. Moreover, consumer spending, which supported positive growth in the first quarter, is also gradually slowing, further strengthening the possibility of a recession by the end of the year.

This content was produced with the assistance of AI translation services.