Today in Corporate America: Less is More

When you think of American business as usual, you used to think of robust corporations ever expanding. That's no longer the case these days. In order to stay profitable, many large companies are actually having to shrink. It may not be popular, but it helps with survival of the species.

As consumers spend less and banks lend less, businesses are reducing their staffs, inventories and assets, so they can work leaner and meaner. For example, Target is testing stores which carry 50% fewer products. Airlines are cutting back on flights and services. Macy's has closed down redundant and unprofitable stores in various locations, and we've all heard the horror stories of, and perhaps been directly affected by, companies laying off a decent proportion of their staffs to reduce payroll expenditures.

That may be nice for stockholders, but it's not helping consumers much. Those who have jobs are not getting raises to keep up with inflation. A Bureau of Labor Services Report recently showed that average hourly earnings were up 2.2% in December, while average consumer prices rose 2.3%. Those searching for jobs are finding fewer and fewer available. So we, as consumers, tighten our belts and consume less, which forces many corporations to do the same thing. Some experts predict that as profits rise, companies will start hiring and expanding again.

These experts see American business as being a little like the American body. We have this tendency to over-indulge and put on unnecessary weight, and we have to lose some of the fat before we can start adding muscle. Optimists say this is a wake up call, and that we'll be healthier in the long run.

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January 31 2010 at 10:29 AM Report abuse rate up rate down Reply

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