The prime minister has expressed her anger at the fact that The Warehouse Group is about to lay off 1,080 workers. She is particularly angry because the company accepted the government wage subsidy in March, taking $68 million in government subsidies at that time.
This week alone, we have the women’s fashion chain Max closing 17 of its stores, and Air New Zealand about to lay off another 2,000 workers, cutting its pre-COVID-19 workforce more or less in half. We also have one of Jacinda’s favourite designers, Ingrid Starnes, announcing its move to online sales only, with the closure of all of its stores.
Jacinda once again demonstrates her fundamental lack of understanding of anything to do with business.
The wage subsidy, introduced last March, was a very good scheme, designed to help employers to keep their employees during the lockdown period. It was an acknowledgment that businesses that pay workers to do nothing will not survive for long. But that is all it was. It did not help business with anything other than wage costs. The funds were designated to be paid to employees, and that is all.
Did Jacinda think that the wage subsidy would actually save businesses from capitulation? Did she not realise that all it would do would be to stave off redundancies for 3 months, unless the economy had been allowed to reopen properly a lot sooner?
Had we been in lockdown for just a month, and retail and hospitality premises allowed to open up after that, we would not be seeing as many redundancies as we are now. Tourism would still have taken a heavy blow, but shops, cafes, bars and restaurants would have done much better, instead of being in partial lockdown for the following month. The wage subsidy would have continued to help them through the pandemic while they built up the revenues lost during the lockdown period.
But that didn’t happen. Retail and hospitality suffered considerably during the lower lockdown levels. Looking at the queues snaking around the carpark at The Warehouse last weekend, I decided to give the place a wide berth. I am certain that many other people did the same thing.
To add insult to injury in The Warehouse’s case, there was confusion at the start of lockdown as to whether or not their stores would be open throughout. You can be fairly sure that the stores all ordered extra supplies in the expectation that they would be able to remain open. While not much of their stock is perishable, it still has to be paid for; and that is difficult when there is no revenue to offset the stock payments.
As the first tranche of the wage subsidy comes to an end, we can expect to see a lot more redundancies announced, and the bulk of them will come from tourism, hospitality and retail. These are the industries that are just coming back to life now, after more than two months of limited trading, or for most of it, no trading at all.
Jacinda is also implying that The Warehouse should not have taken the wage subsidies if they knew they were going to lay people off. Once again, this shows her total naivety when it comes to business. In March, as the pandemic was ravaging countries around the globe, no one knew what was going to happen. Many business people had no idea whether they should apply for the wage subsidy or not. You could say no one ever knows what the future holds, but this was the most uncertain territory ever. Forecasting, a precarious practice at the best of times, became totally impossible. No one, at The Warehouse or anywhere else, had the faintest idea of how this was all going to play out. But many experts recognised that enforcing a lockdown was going to create an economic downturn. The question as to how bad it will be is as yet unanswered.
Jacinda has reached almost cult status in this country but she has a poor understanding of business and economic matters. She should definitely ‘stick to her knitting’, which is being the government’s front person, and leave economic matters to those who understand them. Oops. Did I say something sexist just then?
If you enjoyed this BFD article please consider sharing it with your friends.