Royal Mail is to cut 2,000 jobs across the business following the devastating impact of the coronavirus. The job cuts will mostly be management roles, with the aim of saving £130m in costs.
Royal Mail revealed that the pandemic has led to a trend of more parcels bing delivered and fewer letters being sent, and it had not adapted quickly enough to that.
Keith Williams, interim Executive Chair, Royal Mail Group, commented: “In recent years, our UK business has not adapted quickly enough to the changes in our marketplace of more parcels and fewer letters. COVID-19 has accelerated those trends, presenting additional challenges.
“We are implementing a three-step plan. Firstly, we’re taking immediate action on costs, which will result in a £130m saving in people costs next year and flat non-people costs, along with a reduction of around £300m in capex across the Group over the next two years, to address the immediate impact of COVID-19.
“Regrettably, we are also proposing a management restructure impacting around 2,000 roles. We are committed to conducting the upcoming consultation process carefully and sensitively. We will work closely with our managers and their representatives during this difficult period, including supporting them as they transition into the next stage in their careers.”
Dr Paul Simmonds, of Warwick Business School, said: “Today’s announcement of 2,000 job losses at Royal Mail should come as no surprise. If there is anything to be surprised about, it’s that the number of redundancies isn’t higher. The announcement comes hot on the heels of a number of similar announcements across a range of sectors as companies try to adjust their operations to match lower levels of activity that will persist for some time and reflect the global recession that is inevitable. And there will be many more announcements as the government’s furlough scheme winds down. While the scheme has undoubtedly kept many workers in jobs through the Covid lockdown, many will come to see it as deferring redundancies rather than avoiding them.
“The Royal Mail cites Covid-19 in today’s announcement but it isn’t the only driver. Since before privatisation, Royal Mail letter volumes have been in decline making the company’s transformation into an efficient parcels focused business essential. Covid is exacerbating the decline in letter volumes but it already existed. Therefore, has progress towards that necessary business transformation been realised quickly enough?
“Under Dame Moya Green, CEO at privatisation in 2013, the company did, despite competition from the likes of DHL and FedEx, enjoy good growth in its parcels business and was successful in many of its efficiency programmes, which saw the introduction of new technology and the closure or amalgamation of many sorting offices. However, progress seemed to stall under Rico Black, who became CEO in 2018 and relations with the Communication Workers Union (CWU) also deteriorated – leading to his departure in May 2020 and the non-executive chairman, Keith Williams, assuming executive responsibilities.
“Interestingly, in today’s announcement, Keith Williams implicitly criticises his predecessors saying that ‘the UK business has not adapted quickly enough’. He clearly recognises the challenges, Covid-19 included, that lie ahead and the urgency with which they need to be addressed. The job losses today focus on management roles and represent a 20% reduction. Given their central role in introducing much-needed new technology and working practices, the cuts will need to avoid negatively impacting Royal Mail’s ability to achieve its efficiency targets. The management cuts will be resisted by the Unite union, which represents many managers, but there are likely to be more non-managerial job losses ahead in the quest for greater efficiency and that will mean further conflict with the CWU, which already has a strike mandate relating to this year’s pay award dispute.
“The issues with letter volumes again raises questions over the long-term future of the Universal Service Obligation which effectively commits Royal Mail to providing mail collection and delivery services across the UK at prices that do not vary according to distance. This expensive obligation impacts costs and profitability and puts it at a disadvantage to competitors who focus on profitable parcels operations. There is a review of the USO on the horizon and Royal Mail will be lobbying hard for changes.
“None of these issues are easily or quickly resolved and the markets recognise this. Royal Mail’s share price has fallen from its May 2018 peak of 631p (market capitalisation £8.6bn) to around 170p (mkt. cap. £1.7bn) resulting in demotion from the FTSE100 to the FTSE250.
“To be fair, it’s not all bad. Parcel volumes continue to increase and the pandemic has further fuelled online shopping volumes although that may be tempered in the coming months by the inevitable squeeze on household finances. Furthermore, Royal Mail possess an enviable UK-wide delivery infrastructure and also has profitable operations overseas which are expanding.
“Today’s announcement should be seen as a first step and a recognition that Royal Mail has to change….and quickly but it will be far from easy and there will almost certainly be further job losses. The appointment of a credible and experienced CEO is also key to the future of Royal Mail.”