Nike Declares 2% Workforce Reduction to Meet Their $2B Savings Goal; What Led to the Decision?
50 days into the new year and the tech space has seen more than 30,000 layoffs. Some of the big companies announcing layoffs include Salesforce, Twitch, Pixar, Google, Flipkart, Cult.fit, and Paytm, with now Nike joining the list. Every company has a different motive behind announcing layoffs. Meta's boss, Mark Zuckerberg explained the sudden layoffs and considered over-hiring and cost-cutting to be the main reasons. He further mentioned that the COVID-19 pandemic has messed everything up and companies are trying to navigate their operations effectively. Let's explore why Nike's CEO made the announcement and added its name to the top company layoffs of 2024.
Nike’s unexpected layoff declaration
The famous sports apparel company, Nike announced that it will be letting go of 2% of its workforce, which means around 1,700 employees will lose their jobs, per CNN. The reason behind this big step was attributed to the $2 billion savings plan formulated in December 2023 which needed worker reduction. Furthermore, a Nike spokesperson issued a statement, stating, “The actions that we’re taking put us in the position to right-size our organization to get after our biggest growth opportunities. While these changes will impact approximately 2% of our total workforce, we are grateful for the contributions made by all Nike teammates.”
In December 2023, the company shared their revenue predictions and realized that they were making even less money than they expected, leading to cost-cutting. The $2 billion savings plan was made for a span of three years. Another reason they stated for layoffs is that the consumer's demands and their ways of shopping are changing, affecting Nike's profits. Customers are now spending on basic apparel and sportswear instead of buying lavish sneakers. Additionally, the company is also facing tough competition from upsurging brands such as Hoka and On Cloud.
Nike CEO John Donahoe expressed his opinion in a statement by saying, “This is how we will reignite our growth. This is a painful reality and not one that I take lightly. We are not currently performing at our best, and I ultimately hold myself and my leadership team accountable.” Moving further, the company's finance chief Matt Friend commented on how the world as a whole is spending less, because of the economies of China and Europe.
Nike layoff phases and affected units
The company revealed that the layoffs will take place in two phases. The first phase will take place this week and the other round of layoff will take place around the end of May 2024. They further mentioned that the decision on which departments will be affected has not been taken yet. However, employees working in stores and warehouses will be unaffected. Before the layoffs, Nike reduced their revenue expectations as they saw major changes in customer behavior when it came to buying sports clothing. They focused more on wholesale orders and soft online sales as more discounts would attract more customers.
With its billion-dollar savings plan, Nike's cost-cutting process also included the integration of more advanced technology and machines. This will eliminate the use of some departments which will in the end save their costs. Earlier in 2023, Nike announced the layoffs of hundreds of employees fearing the recession which eventually cooled down. Additionally, it spent $400-$450 on employee severance to let their employees feel that they were not just being kicked out. They are further looking to resize their organization and by letting go of some of the segments, they are now able to call their organization size the ideal one.
