The new head of Wesfarmers (ASX: WES) owned Target stores Mr Stuart Machin, has said in an interview with The Australian Financial Review, that he plans to cut over 200 jobs from the head office in Geelong, Victoria, as he tries to get the retailer back on track. Machin also said he expected further job losses in the future as he streamlines the number of warehouses the company utilises.
It has certainly been a bleak few months for employees across the nation and in particular for workers in Geelong. Machin's announcement comes just days after car maker Ford Australia announced it was shutting down its Geelong and Broadmeadows plants, which will result in the direct loss of 1200 jobs and likely countless others from associated suppliers.
Until now, the resource and manufacturing sectors have been at the centre of the job cutting. Major miners including BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) have slashed the number of workers in their coal divisions as coal prices have plummeted. At the same time many mining service firms such as Transfield Services (ASX: TSE) have been forced to issue profit downgrades and also reduce their workforces in response to slowing resource sector demand. It now appears that job cutting is spilling over into the broader economy, as Target joins a list that includes casino operator Crown (ASX: CWN) and the ANZ Bank (ASX: ANZ) in reduced staffing levels.
Foolish takeaway
For investors it is important to differentiate between companies which are growing earnings through revenue growth and those increasing earnings via cost cutting, as increasing earnings via the latter method is unsustainable. It is also important for investors to consider what increased unemployment means for the domestic economic outlook. Higher unemployment and a slowing domestic economy may mean investors should focus their attention on companies with exposure to faster growing foreign economies.
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Motley Fool contributor Tim McArthur has no financial interest in any company mentioned in this article. The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
