Landlords and their lenders who’re still thinking work-from-home is just a blip will undergo a reckoning in due time.
By Wolf Richter for WOLF STREET.
Synchrony Financial, GE’s consumer financial services spinoff with 16,500 employees according to its website – presumably before the layoffs – announced during its earnings call this morning that it has “realigned and reimagined the way we work,” and that it would lay off people, and that it would close offices entirely, and that it would reduce the size of other offices, and that it would now allow all employees and require some employees to work from home permanently.
This is the latest in a series of major companies having made similar announcements, including Microsoft. But Synchrony’s proposal appears to be more radical in that it:
- Allows all its US employees to work from home permanently.
- Requires some employees to work from home all the time with no access to an office.
- Requires all employees to work from home at least some of the time.
- Requires even management with “assigned seats” to work from home at least 1-2 days a week.
Citing “safety and maximum flexibility for employees as a backdrop,” CEO Margaret Keane explained that the company has embarked on a cost-cutting mission, with cost savings of $150 million to $250 million in 2021, that entails an $89 million restructuring charge right off the bat, plus layoffs, work-from-home on a permanent basis, and drastically reducing its “physical footprint” – namely office space.
“We have reduced the size of some of our sites, and closing other sites entirely,” she said during the earnings call (transcript via Seeking Alpha).
“These changes stemmed from our employees’ desire to work from home. Their productivity in this environment will help us drive long-term efficiency and profitability of our business,” she said.
“We are also being thoughtful, targeted and aggressive on our cost structure as we move forward, allowing us to continue our focus and investment in future growth,” she said.
In a memo to employees, reported by Bloomberg today, CEO Keane and Synchrony President Brian Doubles explained that Synchrony will have three types of offices:
- Virtual offices: employees will work from home permanently, and there is no office they can go to.
- Hoteling offices: employees work at home permanently, but if they need to, can book a desk at a nearby office location.
- Hybrid offices: employees can work from home but they have an assigned seat at a nearby office where they can work at least three days a week.
Even executives with assigned seats — so other executives don’t have assigned seats? — will be expected to work from home one or two days a week, to “role model our work-at-home mindset,” the memo said.
“Our site footprint changes will drive significant cost savings which, combined with all of our efforts to manage cost, are aimed at preserving as many Synchrony jobs as we can and reducing the size of any layoffs,” the memo said.
Synchrony’s “new site footprint strategy” is going to impact its 20 offices spread across the lower 48 states of US (it also has offices in Puerto Rico, India, and the Philippines). These US offices cover everything from technology and cybersecurity to collections.
The company didn’t say which offices were already closed permanently, which would be closed permanently, and which would be reduced (image via Synchrony):
Synchrony’s website describes the functions and office environment at its eight “key” office locations – and this gives you a feel for what kind of jobs would be done from home:
Stamford, CT, headquarters. Functions include “Risk, Technology, Audit, Legal, Compliance, Finance, Marketing, Sales, Communications, Human Resources, and Enterprise Operations.”
Alpharetta, GA. Functions include “everything from Marketing, Finance, Risk, Sales and Technology to Collections, Operations and Client Development.” It’s “a bustling hub of activity,” it says. There is a dedicated cafeteria and fitness center.
Canton, OH. Functions include “Collections, Operations, Fraud, and Support.” The facility includes a dedicated cafeteria and fitness center.
Charlotte, NC. Functions include “Operations, Marketing, Risk and Compliance.” The site has a dedicated cafeteria and a “fitness center featuring walk stations that allow you to exercise and work at the same time.”
Chicago, IL. Functions include “Marketing, Risk, Operations, Collections and Technology.” And it adds, “It’s a beautifully designed space that includes a dedicated cafeteria serving fresh contemporary cuisine.” And there’s of course a “state-of-the-art fitness center, which features a wide range of equipment and classes.”
Kettering, OH. “Our largest US business center with employees across all functions including Operations, Risk & Fraud, Technology, Collections, Finance, Sales and Marketing.” The site has a dedicated fitness center and cafeteria. And look, “nearby Dayton was recently voted Forbes’ ‘Most Affordable City,’ making this a great place to raise a family.”
Orlando, FL. Two offices in Longwood and Altamonte Springs. Functions include “Customer Service, Collections, Recovery, Post Office Returns, Scanning, and Data Entry.”
Phoenix, AZ. “Our lively Phoenix office is home to employees covering Enterprise Operations, as well as other strategic personnel. The site includes a “dedicated café and fitness center.”
Getting rid of offices, cafeterias, and fitness centers, and whittling down the number of employees, and having those remaining employees work from home either all of the time or part of the time is surely going to save the company some money. It’s an irresistible thought. And now that the technology is in place and has been proven to function during the Pandemic, and has already been at least partially implemented, it’s just a matter of finishing up the details.
The more of these announcements we get, the more we realize that this isn’t a blip, but that the Pandemic has triggered a massive shift in corporate thinking, that what used to be dismissed as impossible has proven to work just fine of the past seven months, with some fine-tuning and lots of technology and some flexibility, hence the meeting places and temporary seats in an office and the like – the hybrid model that allows a company to drastically cut its office footprint while at least some employees are still able to get together.
Office expenses are shifted from the business to the household.
If both adults in a household suddenly work at home most of the time, their home might not be big enough to accommodate their needs, and they’ll need to look for something larger. And they now have to buy their own toilet paper, coffee, office supplies, office furniture, lunches, and treadmill where you can “work while walking at home,” so to speak.
On the other hand, they can also move further away to less costly areas and still dodge the horrible commutes.
And office landlords and their lenders will have to do a lot of creative thinking quickly. There is already a huge amount of office space available. More is becoming available, and new office space is still being built. Landlords and creditors who are still thinking that work-from-home is just a blip, and that this too shall pass – just like mall-landlords thought ten years ago that ecommerce was just a blip – will undergo a reckoning in due time.
“Sublease Pandemic?” Office leasing activity plunged or collapsed in Q3, depending on city, even as huge amounts of sublease space that companies no longer need got dumped on the market. Read… Commercial Real Estate Office Sector Crushed by Work-from-Home, Tsunami of Supply in Q3: Manhattan, San Francisco, Houston, Chicago, Los Angeles
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