CINCINNATI -- It’s enough money to build 24 new Kroger stores, buy 18 million shares of Macy’s stock or wash 2.3 billion laundry loads with Tide Pods detergent. But that’s not how how Cincinnati’s biggest companies spent the money in 2016.
Instead, they spent $610 million just to say goodbye.
Kroger Co., Macy’s Inc. and Procter & Gamble Co. have now revealed details on severance packages that went to more than 4,000 people in the 2016 fiscal year. The numbers confirm what headlines have hinted for months: Corporate downsizing is back in Cincinnati.
Excluding Procter & Gamble, which is at the tail end of a massive restructuring program that began in 2012 and peaked in 2015, local publicly traded companies more than doubled their combined severance spending in 2016.
At least seven local companies reported hefty sums for severance and restructuring in their 2016 reports to shareholders. And that doesn’t count the early retirement offer Fidelity Investments made in February. The privately owned money manager is offering buyout packages to people over 55 employed by Fidelity for at least 10 years. That’s 6.7 percent of its U.S. workforce, which includes about 4,000 people in Northern Kentucky.
The cost-cutting trend could be a long-term positive for the region because Kroger, Macy’s and P&G all plan to reinvest their savings in new growth initiatives that could fortify the companies against new competitive threats, said Chris Desimio, a financial advisor in the Kenwood office of Wells Fargo.
“Remaining competitive is not only good, it’s vital,” he said. “So, in the long run, it’s good. In the short term, it’s painful and disruptive.”
No one knows that better than Nancy Necessary, who learned Feb. 28 that she was among 140 employees to be let go from Macy’s Systems and Technology. She’s one of eight impacted by the shutdown in Cincinnati, a move that brought an abrupt end to her 28-year Macy’s IT career.
“It’s a shock to the system,” said Necessary, the mother of WCPO Editorial Cartoonist Kevin Necessary. “I hadn’t been to the doctor for eight to 10 years. A week and a half after this all came down, I got very sick and ended up in the hospital.”
Diagnosis: Shingles, brought on by stress.
“First thing the ER said to me is, 'Have you had any stress in your life recently?' I said, ‘Well, I lost my job 10 days ago' and I just started bawling. I hadn’t cried up to then," she said. “So, it was stressful.”
At 65, Necessary is hoping to find another IT job. A recent interview went well at Fifth Third Bank, which also happens to be a local company stroking severance checks these days.
Here’s what we’ve learned from company reports to shareholders in the past few months:
- P&G set aside $262 million in charges against earnings for severance packages involving 2,770 people in the 12 months ending June 30, 2016. That’s $94,585 per person, down from last year’s $107,053 average for 4,820 severance recipients.
- Kroger reserved $180 million for the 1,300 people who accepted its voluntary retirement offer in March. That means retirees left the company with $138,000 in severance payments, on average.
- Macy’s numbers are less defined. It disclosed $168 million in severance charges for 2016, but hasn’t revealed how many people shared the payments. Macy’s disclosed in a news release last January that it would eliminate more than 8,700 jobs by closing 40 stores and consolidating call center and back-office operations. Macy’s announced additional cuts -- including the closure of another 68 stores -- three months ago.
All three companies declined to reveal how much of its severance spending went to local employees, and all stressed that the point of the downsizing is growth.
“These funds can be reinvested for growth, whether that is into research and development, trial-generating programs or other areas that will allow us to innovate faster and engage more deeply with our consumers,” said P&G spokesman Damon Jones. “This will lead to growth. Our efforts all along have been about making P&G a more agile and profitable company -- size flows from that.”
Kroger told investors in a March 2 earnings call that the cost savings from its voluntary retirement program will be used to lower prices and improve service offerings for its customers. Macy’s is making a similar pledge.
“These changes are part of our overall cost efficiency efforts that allow us to further invest in our growth initiatives,” said Macy’s spokeswoman Jean Coggan. The company will increase spending on “omnichannel capabilities and store-related growth strategies such as Backstage and Bluemercury,” she added.
Severance payments weren’t limited to Cincinnati’s three largest public companies. WCPO reviewed the SEC filings of more than a dozen local companies and found the following additional disclosures:
- Cincinnati Bell Inc. reported restructuring and severance costs of $11.9 million for an unidentified number of employees let go because of “increased outsourcing of IT professionals.”
- General Cable Corp. reported separation costs of $10.5 million for 370 employees in 2016, or $28,278 per employee. About 60 percent of the payments went to North American employees for the cable and wire manufacturer, the rest to Europe and Latin America.
- Lighting manufacturing LSI Industries reported $900,000 in restructuring costs including severance for the 2016 closure of a plant in Kansas City.
- Fifth Third Bank told its shareholders that personnel costs increased by $103 million in 2016 partly because of “higher retirement and severance costs” related to a voluntary retirement program. But, it didn't break out a number for severance expenses.
So, what’s the regional impact from this cost cutting?
“Nobody really knows the answer,” said Janet Harrah, senior director at the Center for Economic Analysis and Development at Northern Kentucky University.
Harrah said there are too many unknown variables to measure the economic impact from severance payments, including how many Cincinnatians are being cut loose by their employers. Even if we knew that number, other variables could impact any estimate on the ripple effect from severance checks.
“How many will fully retire?” she said. “How many change careers? How many start new businesses? How many stay in the community?”
A more important question, Harrah said, is what impact will corporate downsizing have on the local labor market.
In other words: Will the lost jobs be replaced? And will the new jobs pay as much as the old ones?
“The rate of job growth is probably going to slow going forward and the mix of jobs is going to change,” she said. “The mix is changing because of technology and the way companies deliver goods and services.”
Desimio agrees that technology is enabling companies to do more work with fewer employees. But he also thinks the region is benefiting from a rising tide of severance packages, driving an increase in spending on housing, cars, entertainment and investment portfolios.
“It’s certainly not hurting the economy,” he said. “Just go to Over-the-Rhine, Walnut Hills, The Banks and Newport and see the people in restaurants. Just behold what is happening. Money is circulating through the economy.”
Wells Fargo has at least a half dozen clients that accepted early-retirement offers in recent years. For the most part, they’re staying in Cincinnati. Necessary expects all eight of her former co-workers at Macy’s will remain in the region.
Half of them already have new jobs.
While Necessary’s job search continues, she is looking forward to more travel. Ireland and Greece are on the bucket list, she said. But she’s not ready to quit working altogether.
“I believe I have something else to offer,” she said. “I’ve been working since I was 15 years old, and I have a need to do it.”