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The share price of Morrisons supermarkets (LSE:MRW) rebounded today by 2.28% from a month-long decline, returning to 192.60 on the day. The MRW share price had been at 214.00 on 14 May. Even that was down from 302.50 as at 12 September 2013, as Great Britain’s fourth largest supermarket chain has had to respond to the changing face of competition. Its announcement today that it was would be eliminating 2,600 redundancies in store management positions has been well received.
I usually look at head-count reductions as a blood-letting of the front-line employees as a cost-savings designed to preserve the executives’ jobs and justify their pay, because that is usually exactly what it is. Morrisons’ approach is, however, although not aimed at executive-level positions, trimming the fat that inevitably grows at the on-site management levels. There is always a tendency to expand management level positions within the normal course of business. It happens for a variety of reasons, including creating new positions to “reduce the load on management” and from practices of promoting from within. There are many times when these two dynamics work hand-in-glove.
I laud Morrisons for having the insight and courage to do the right thing that best benefits the repair of systemic inefficiencies. Not only will this result in a fairly substantial cost savings, it also frees up capital that can be channeled into the company’s restructuring plan at the local levels. Underscoring the financial significance of this move is the fact that CEO Dalton Philips has waived his annual bonus. That demonstrates the kind of character that a few bank CEOs might want to emulate.
Instead of just reducing headcount, Philips and his board are re-conceiving the Morrisons experience to “modernize the way our stores are managed.” The Telegraph reported that, “Morrisons said the job cuts are a consequence of its desire to reduce the number of management tiers within stores while improving customer service. The restructuring involves merging department managers and supervisor positions into a single collection of team managers. The company said it will reinvest in customer-facing jobs on the shop floor and is also creating 4,000 jobs through opening new convenience stores and supermarkets this year.” (Emphasis mine.)
Once again, I laud Philips for not following the pattern of so many other executives who rearrange the deck chairs in the midst of a crisis and call it good whilst leaving the real problem unattended. Philips approach is to get all hands on deck assigned in the best way possible to properly address the reality of the situation. He is off to a good start. Implementation will now be key. The successful implementation shall be, at least in part, dependent upon the extent of either the interference or cooperation of the USDAW union.
Time will tell, but that’s all I have to say for now.
