In 2009, by the time Q1 results were finalized in mid-April, it became obvious that Perigee’s sales were hurting. The company was going to have to pull off a revenue miracle, or significantly cut back on costs, to remain profitable for the year. Three months later, right through the heart of the spring season which was usually the company’s best, the picture appeared bleaker still. Sales were projecting to an annualized $107.5 million, down 29% from 2007’s record numbers. That would leave the company right on the cusp of break-even, back where it was in 2006.
But because the second quarter was particularly weak, Naismith, Nakamura and the Board did not have much confidence in the $107.5 million number, either. In late July, they held a series of long meetings behind closed doors in the main conference room in the office. You passed by a couple of times, and everyone in the office was talking in hushed tones about what might be coming. Closing down the stores? Layoffs? A shakeup at the top? A merger or sale of the company? Rumors were flying everywhere, and all of a sudden no one could be productive in the office.
Ellie, your boss, has always been very honest and forthcoming with you. And sure enough, on the day after the closed door meetings end, she calls you from her cell phone on the way home from work and asks if you can meet at Starbucks. She arrives there looking totally spent. You find a quiet table in the corner, and she tells you that the Board and senior management have decided that the best way to respond to the crisis is through a workforce reduction. Nothing has been decided yet, she tells you, because they wanted to seek the input of the VPs first, since you know your personnel best. On the revenue side, they are still debating whether to move forward with the Energy Division. But Ellie tells you that the Retail Division was a prime focus of the discussions, because it represents about 10% of the company’s entire labor yet only about 6% of its revenues, and none of its profitability. They talked about closing a store – though apparently the covenants on the San Diego lease require a $90K annual penalty for early termination until the space is re-leased, and no one is looking for leases – or reneging on the LA leases, or even more radical moves.
But first things first: they have crunched the numbers and determined that a 17% workforce reduction companywide, impacting approximately 44 people, would generate about $2.57 million in savings with a relatively negligible impact on revenues. That could be enough to keep the company in the black. They want your recommendations, with a strong suggestion that they would like to see labor savings of at least $575,000 coming from the Retail Division, which would be about 40% of your payroll.
Your pulse is racing as you listen to this, taking in all of the implications that your brain can process at once and juggling all of the numbers – profitability, head count, viability, revenue projections. But for some reason the one calculation that you make clearly, immediately and without hesitation is this: profitability = a $25,000 bonus for you, plus the prospect (admittedly uncertain under these conditions) of another revenue sharing check, like last year. And, though you are looking at Ellie, you realize that you are thinking about your daughter.
Ready? Go.
