The Hidden Price Tag of Layoffs in Fashion & Retail: Why Retention Pays Off

In the fast-paced world of fashion and retail, it's tempting to view layoffs as a quick fix for financial challenges. However, they often lead to hidden costs that outweigh the immediate savings. Here's why retaining employees can be more cost-effective:

Severance and Administrative Expenses Add Up

While layoffs reduce payroll expenses, they introduce significant costs such as severance packages, legal fees, and administrative overhead.   For instance, as part of its "Reinvent" restructuring initiative, VF Corp, the parent company of brands like The North Face, Vans, and Timberland, projected restructuring costs between $190 million and $210 million, with approximately 70% attributed to severance and employee-related benefits. This translates to an estimated $133 million to $147 million solely for severance packages. (The Business Journals)

Productivity Takes a Hit

When employees leave, their responsibilities don't vanish; they're redistributed. More work with fewer employees and support leads to burnout and reduced productivity. The loss of experienced team members also means a loss of institutional knowledge, which isn't easily replaced. This can negate the financial benefits of the layoffs, as the quality of customer service and operational efficiency suffer.

Voluntary Turnover Increases

Layoffs can shake the confidence of remaining employees, prompting them to look for new opportunities. The cost of recruiting, hiring, and training new staff can quickly surpass any savings from initial layoffs. It could also take time for new hires to reach the productivity levels of their predecessors, affecting overall performance.

Higher Unemployment Insurance Taxes

Layoffs can increase a company's unemployment insurance tax rate, leading to higher costs in the following year. Forbes

Brand Reputation Suffers

In industries where image and perception matter (hello, fashion and beauty), layoffs can do more than disrupt the team—they can leave a lasting mark on your brand. Candidates start to question stability. People talk. And suddenly, you're not just hiring for a role. You're rebuilding trust.

We recently spoke with a candidate who had just accepted a new position. On her first day, she found out that the person who hired her (and would have been her manager) was laid off and that she would be reporting elsewhere. This left her questioning the company's direction and whether she had made the right decision. That kind of uncertainty doesn't just impact one hire—it can ripple through your reputation.

Morale and Company Culture Decline

While sometimes necessary, layoffs can inadvertently create a culture of fear and uncertainty. Employees may feel undervalued, leading to disengagement and reduced collaboration, which can stifle productivity.

Experienced employees possess valuable knowledge about company processes, customer preferences, and industry trends. Layoffs can result in the loss of this institutional knowledge, making it challenging to transfer and leaving gaps that can hinder decision-making and efficiency.

In industries like fashion, beauty, and consumer lifestyle, where brand identity and customer experience are paramount, preserving this internal expertise is crucial. It's not just about retaining employees; it's about maintaining the fabric of the organization's culture and the intangible assets contributing to its unique value proposition.

We have recently spoken with candidates who crave mentorship, leadership, and stability. What are some ways companies can continue to offer these, even as a copy goes through changes?

Rehiring Costs Are Substantial

When the market rebounds, companies often need to rehire. Attracting, onboarding, and training new employees is time-consuming and expensive, especially compared to retaining existing talent.

Supply Chain Disruptions

In the apparel and other consumer lifestyle industries, layoffs can disrupt the supply chain, especially if key procurement, quality control, or logistics personnel are let go. This disruption can lead to delays, increased costs, and compromised product quality.

So, what's the alternative?

In the fashion, beauty, and consumer lifestyle industries, brand reputation and your team's specialized knowledge are critical assets. The hidden costs of layoffs—lost trust, weakened culture, and talent hesitation—often outweigh short-term financial savings.

Before defaulting to cuts, consider options like optimizing management layers, using natural attrition, or creating internal mobility pathways. These strategies protect morale, preserve institutional knowledge, and help maintain a resilient culture that supports long-term growth.

When layoffs are necessary, transparency and empathy go a long way in protecting your brand from lasting damage.

At PRTNR Recruiting, we know people are your brand's most valuable asset. Let's find innovative, people-first solutions together.