AOL and Starbucks Announce Major Job Cuts: Round Two of Layoffs

AOL to cut about 700 jobs, Starbucks to slash up to 6,000, close 300 stores.

ByABC News
January 28, 2009, 4:54 PM

Jan. 28, 2009— -- The year is off to a somber start for many workers, with news of more job cuts coming amid tough times generally. Major companies announced massive layoffs this week, blaming the weak economy.

AOL Inc. chief executive Randy Falco sent an internal memo to employees today about plans to cut about 700 jobs, 10 percent of its workforce. AOL, a division of Time Warner Inc., serves as an Internet services and media company. But with the recession, many online marketers are tightening advertising budgets. Other cost-cutting measures include freezing salary increases.

Starbucks announced today plans to slash as many as 6,000 jobs and close 300 stores this year. The Seattle-based coffee giant reported a 69 percent drop in profit for the fiscal first quarter. Last summer, the company announced it would close 600 stores, laying off 1,000 employees.

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Target Corp., the popular discount retailer, also announced major layoffs yesterday. Target plans to reduce staff at its Minnesota headquarters, including about 600 employees and 400 open positions, primarily in the Twin Cities area. Later in the year, the company plans to close its Little Rock, Ark., distribution center, which staffs 500 employees.

In a statement to Reuters, the company cited the economy as the main reason for cutting jobs.

Stores have struggled financially because of poor retail sales in December and throughout the holidays. Other moves by the company include suspending senior salary increases, operating expenses and holding off on new store openings.

Besides general merchandise, the discounter also sells food and operates a co-branded credit card partnership with Visa. According to the company's October 2008 corporate report, Target maintains about 1,685 stores across 48 states. Soon after the company released its news statement, Target shares closed up 19 cents at $33.34 per share on the New York Stock Exchange today.

Several major U.S. and foreign companies announced thousands of new layoffs in the past few weeks as they work to adjust to new economic realities.

Sprint Nextel, the nation's third largest wireless carrier, was one of at least four large U.S.-based companies announcing large-scale job cuts. Pfizer, which is buying rival pharmaceutical giant Wyeth for $68 billion, is planning to cut 8,000 jobs by the end of March, about 13 percent of its work force.

"Labor reductions are always the most difficult action to take, but many companies are finding it necessary in this environment," Sprint Nextel CEO Dan Hesse said in a statement.

The closure of Home Depot's high-end EXPO stores, meanwhile, will affect 7,000 employees, or 2 percent of the company's work force. In addition, Home Depot today said it would also institute a salary freeze for company officers.

Construction equipment manufacturer Caterpillar said it would cut 20,000 jobs -- nearly 20 percent of its workforce -- after reporting that its profits fell 32 percent. The company said the job cuts were designed to help "deliver our 'trough' profit target" of $40 billion in sales and revenues.

President Obama said today in his speech on fuel-efficiency standards that layoffs at Caterpillar, Home Depot, Sprint Nextel and elsewhere "are not just numbers on a page."

"As with the millions of jobs lost in 2008, these are working men and women whose families have been disrupted and whose dreams have been put on hold," he said. "We owe it to each of them and to every single American to act with a sense of urgency and common purpose."

Obama said he looked forward to signing a stimulus plan "that will put millions of Americans to work."

Well-known companies headquartered in the Netherlands also announced major layoffs today: financial services company ING said it would cut 7,000 jobs while Phillips Electronics plans to cut 6,000. Both companies employ people in the United States.

Employers shed 524,000 workers last month, according to the Department of Labor. Unemployment now stands at 7.2 percent, the highest since January 1993.

The losses make 2008 the worst year for layoffs since 1945, when 2.75 million jobs were lost. Granted, the U.S. workforce was smaller then, but it's still significant.

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The December losses also show an accelerating number of layoffs in recent months, leaving the prospect for workers in 2009 that much more grim.

And many investors on Wall Street look toward President Obama to see how exactly his proposed stimulus plan "will save or create at least 3 million jobs over the next few years," as he says.

How he will do that is unclear. Obama said he plans to invest in energy, education, health care and new infrastructure.

"We will put Americans to work in new jobs that pay well and can't be outsourced, jobs building solar panels and wind turbines; constructing fuel-efficient cars and buildings and developing the new energy technologies that will lead to even more jobs, more savings and a cleaner, safer planet in the bargain," Obama said a few weeks ago.

The financial sector has been hit particularly hard in this recession as bad investments and risky loans have gone bad. Banking giant Citigroup had more layoffs than any other company in 2008, according to Challenger, Gray & Christmas, first with a 9,000-job cut announced in April and then another 50,000 jobs eliminated right before Thanksgiving.

It would be an understatement to say that 2008 was a bad year for U.S. automakers who had to turn to the government to bail them out for the time being. First, record-high gas prices drove consumers away from large SUVs and trucks that had been the bread and butter of the automakers for years. Then, banks started to cut off credit to consumers, making car loans harder and harder to come by. As part of its efforts to try and remain profitable, GM in May announced the layoff of 19,000 hourly workers.

Retailers had a particularly hard Christmas as consumers cut back on their spending. But even before the holiday shopping spree, KB Toys, with 275 stores in malls and nearly another 200 temporary and outlet stores, filed for Chapter 11 bankruptcy protection. It was the second filing in four years for the company. As the toy store company goes out of business, 15,000 workers will lose their jobs.

Things weren't so great in the restaurant business this year, either. Americans struggling with rising mortgages and high gas prices cut back on the number of times they ate out. One of the casualties was Bennigan's, which, in July, filed for bankruptcy, closing all the company-owned restaurants. About 9,300 people lost their jobs.

Even rocket scientists aren't immune from the bad economy. Faced with budget cutbacks, NASA announced in June that 7,000 employees at the space agency would lose their jobs.

High oil prices also took their toll on the airline industry. Airlines were forced to slash routes and ground older, gas-guzzling planes. With fewer flights, they needed fewer employees. In July, American Airlines announced 7,000 layoffs as part of its cost-cutting measures.

This was not the year to be in the upscale coffee market. Starbucks, facing competition from lower-cost companies, such as Dunkin' Donuts and McDonald's, announced in July it was closing 600 under-performing, company-owned stores and cutting U.S. expansion plans amid concerns about America's slowing economy. As part of those store closings, 12,000 jobs were lost.

Shock waves spread throughout the financial world when Lehman Brothers filed for bankruptcy Sept. 15, the largest bankruptcy in U.S. history. British bank Barclays purchased Lehman's North American investment-banking and trading divisions, saving some jobs. But an estimated 16,000 people still lost their jobs in Lehman's collapse.

Alcoa, the largest U.S. aluminum producer, announced last week it will fire 13,500 employees in response to shrinking demand for aluminum. Basically, in this global recession, there is less need for aluminum as fewer people buy cars, appliances and other products that use the lightweight metal.

The largest bank failure of the year came when too many bad loans finally caught up with Washington Mutual, the nation's largest thrift. JP Morgan Chase purchased the bank for $1.9 billion. In December, JP Morgan announced the elimination of 9,200 jobs related to the WaMu acquisition. Another 9,160 jobs were cut in May by JP Morgan in connection to its acquisition of failed investment bank Bear Stearns.

In the past few years, consumers have flocked to electronics stores to buy new high-definition televisions, DVD players, digital cameras and all sorts of other electronics. Those purchases waned as the recession grew deeper, pushing struggling Circuit City over the edge. In November, the company filed for Chapter 11 bankruptcy protection. The move came a week after the retailer announced it was closing about 155 Circuit City stores. As part of the store closings, 7,305 jobs were cut.

Things aren't too good, either, for the country's largest telecommunications company, AT&T. If businesses are shutting their doors, they don't need phones. In December, AT&T said it was eliminating 12,000 jobs because of tough market conditions.

With less business out there, there are fewer packages being shipped. In May, DHL's German parent company announced plans to cut costs in its U.S. express delivery business by hiring UPS to handle North American air cargo transportation. The change meant 6,800 jobs would be cut.

With reports by ABC News' Charles Herman and contributions by ABC News' Eleanor Hong