I know that I’ve said before that the primary fiduciary responsibility of corporate management is to preserve and increase shareholder value. I’m sticking with that. However, this still irritates me. Walgreens is cutting 1,000 jobs in the worst job climate in more than a decade:
Breaking with its history to make an unheard-of management cutback, Walgreen Co. announced plans Thursday to eliminate 1,000 salaried positions over the next eight months—about half of them at the drugstore chain’s Deerfield headquarters.
Walgreens for many years enjoyed rapid growth through good economic times and bad, and it fostered an atmosphere where job-holders have tended to stay for decades. It has never experienced a large-scale cut to management staffing.
But the move is consistent with other recent actions by Walgreens as the company turns away from the pell-mell expansion that was its core strategy for more than two decades. Consolidation in the drugstore industry has spawned increasingly tough competition for Walgreens while efforts to hold down costs in the nation’s health-care system have squeezed pharmacy operators.
As pressure on its profit margins increases, the company has responded by sharply slowing the pace of its store-opening initiative: In calendar 2008, for example, the number of Walgreens stores grew by 9.9 percent, but by its fiscal 2011 ending, the company expects the opening rate will have dropped to 2.5 percent or 3 percent.
The cuts announced Thursday won’t involve workers at the company’s more than 6,660 stores, officials said.
Here are my questions. First, why are they cutting back now? If those managers are superfluous now, why weren’t they superfluous a year ago? Second, is this really preserving or increasing shareholder value?
It hasn’t boosted the stock price:
Walgreen fell 19 cents, or 0.7 percent, to $26.84 at 4:15 a.m. in New York Stock Exchange composite trading. The shares dropped 35 percent last year, the biggest annual decline since at least 1981.
So, presumably, this is a move to raise prospective dividends. Heckuva reason to be cutting jobs now. Take the money and run.
Walgreens’s problem is that sales are slowing. Reducing staff won’t do much to increase sales.
Something else that bears considering. The economic downturn of the early 1980’s fell primarily on blue collar workers. The economic downturn of the early 1990’s fell primarily on low level white collar workers. I strongly suspect that the current downturn is going to fall most heavily on people somewhat higher up the food chain. Over the last twenty years or so much of the real income growth has gone to people in the top decile of income earners. I think we’re going to see a flatter income curve when this has run its course.
I wonder how you could discourage this kind of “squeeze the short-term profit and get the hell out of dodge” mentality. Payment in longer-term company bonds (like five-year bonds) instead of stock options, perhaps?
Less than a quarter of Walgreens’s share are owned by funds. Most of the stock is in the hands of the family and top management.
I think the problem here is hunting dividends rather than a stock option thing and I’m not sure what to do with it. I think there’s got to be a lot more social censure.
“The economic downturn of the early 1980’s fell primarily on blue collar workers. The economic downturn of the early 1990’s fell primarily on low level white collar workers. I strongly suspect that the current downturn is going to fall most heavily on people somewhat higher up the food chain.”
Could this be because there has been a tremendous reduction in the blue-collar workforce since the 80’s, due to production moving overseas? Maybe the white collar workers are getting hit because they’re the ones who are left. And mightn’t there be more white-collars than ever, since the decades since the 80’s have seen a huge push to get everyone, everwhere into college?
I’m not trying to be dogmatic or sarcastic- I’m really asking. I wonder lately if we haven’t developed an unbalanced, top-heavy workforce.
Any thoughts?
I don’t think it’s that the workforce is top-heavy. I think it’s that the compensation is top-heavy.
The idea that production has moved overseas is exaggerated; somewhere I’ve got a post around here with citations that show that we’re manufacturing more than ever here—we’re just employing fewer people in manufacturing at higher wages.
What is your view of how illegal workers fit into this picture? Do you think statistics are skewed because they aren’t officially counted in production and wage figures? Or do you see that as insignifigant?
What sources do you use for your figures, btw? Is it something that a non-economist like me could read without getting a blinding headache?
And here’s another question- is there a difference now in *types* of manufacturing? You know, the kinds of products produced domestically and the means used to manufacture them. If less people are needed to manufacture now, does that translate into more female lineworkers, for example? (More automation can mean less need for muscle.) Is it affected by the types of products dominating domestic manufacturing?
Sorry, just can’t help being curious.
Source first, since it’s the easiest. Mostly the Bureau of Labor Statistics. Morningstar.com is always a good source for info on companies, stock, ownership, etc.
It’s politically incorrect to say it but we don’t have a general problem with illegal workers. We have a problem with illegal workers from Mexico. I think that illegal unskilled and semi-skilled Mexican workers have driven wages down in the lowest quintile of income earners and, even worse, enabled employers to model their workforces around unskilled and semi-skilled workers.
Labor and capital are traded off in the economy. When labor is expensive, it makes sense to invest capital to achieve greater production. When labor is cheap, it doesn’t. Over the last eight or ten years there’s been insufficient capital investment, partially because labor is cheap and partially because our economy has been skewed sufficiently by subsidies that we’re overinvested in some things, underinvested in others.
Well, you know, this is what has bugged me about some of early descriptions of Obama’s stimulus plan. At first, all we heard about were pick and shovel jobs rebuilding roads and bridges. And the first thing I thought was: those aren’t the skills being released into the unemployment pool right now. Factoring in the extreme drug violence taking place in Mexico right now, wouldn’t a sudden spurt in construction-type jobs just encourage illegal labor to surge back over the border again? And if it does, and if state authorities look the other way, won’t at least a third of the wages intended to stimulate the U.S. economy simply travel across the border instead of staying in country?
Is that a bogus line of reasoning? Any thougts?
“Over the last eight or ten years there’s been insufficient capital investment, partially because labor is cheap and partially because our economy has been skewed sufficiently by subsidies that we’re overinvested in some things, underinvested in others.”
Doesn’t this conflict with your earlier statement that labor wages were topheavy? I’m getting a little confused.
No, it’s exactly the opposite: it’s consistent with it. We’re overinvested in financials, housing, and healthcare. We’re underinvested in practically everything else.
Yeah, that’s the way see it, too. Not only that but over the last year or so I’ve seen reports that emergency rooms are seeing a slowing of folks using it as their primary healthcare provider and reduced stress on schools and other services provided by state and local governments as workers that were drawn here for construction jobs go back home.
Thanks for your patience. I know I ask a lot of questions.
Overinvested in healthcare, eh? What about the aging demographic in the US? Or do you think that idea has been oversold? What do you make of the Obama administration’s preoccupation with computerizing all medical records?
I’ll tell you one place where I’m certain the nation is overinvested: higher education. And I’m saying this as someone who worked in an Ivy League library for 15 years. Universities are battening on this support, not serving the students with it. 6-figure executive officers abound. New dorms come with amenities like dishwashers and would qualify as luxury apartments if located anywhere else in town. Tuition outpaces inflation.
A destructive societal trend has evolved where college is pushed on everyone- whether they want to be a doctor or a dry-cleaner. (That might be behind some of the top-heavy wages you mention, too.)
I’m all in favor of higher education where it applies, but a lot of what parents are paying for right now is overpriced, psuedointellectual junk- a required ‘toe touch’ so that a graduate can make better than minimum wage.
Pretty soon even a Master’s degree will be meaningless. What then?
I agree with that one completely and find those who say that America’s future lies with more education baffling.
Best Buy, Walgreen, Sears – all had a great past. But none are prepared to compete in the new market requirements. Lacking internal Disruption and White Space, they are not going to grow, or succeed. Sears is likely to fail. And new competitors will most likely reap the benefit of shifting markets. Read more at http://www.ThePhoenixPrinciple.com
I work at Walgreens and I can tell you, for sure, that the company is not doing bad. We have just grown too fast, opening a new store every 16 hours. Our management and corporate structure has stayed the same during our explosive growth, and is no longer feasible for the size of our company.
Expenses are growing faster than revenue and rather than going into debt (we currently have nearly zero), we are slowing things down and restructuring the way that the corporate office supports our drugstores and other businesses.
I can guarantee you that Walgreens is not going anywhere. We are one of only two companies that have experienced 34 years of consecutive sales increases and growth.
The company is not suffering. We are being proactive to ensure that we continue as one of the strongest companies in this country.
Well I think the company is being more reactive than proactive. The cuts are just too drastic in such a short amount of time. The company has not allowed the employees to evolve to change without cut after cuts after cuts. Of course everyone is expected to do more with less but how can you do more with nothing in terms of budget hours. It seems as if the key word is ” getter done” How? We will stretch our employees thin and run off the loyal few that we do have. I think the bottom line here is the company is not revealing the whole truth.
What a shame Take Care was purchased by Walgreens. Now we are caught up in these shinnaigans and have lost our jobs. It is truly odd outsourcing all the medical billing given its complexity.
This was an insightful article:
http://www.newsweek.com/id/233131
So here we are a year later…. Why in the hell are we still going through this? havent the 1000 people or a close number been achieved? Why is it that the rewire wheels are at full steam on course to ruin many more lives?