Dusseldorf Consumer goods manufacturer Henkel wants to cut at least 2,000 jobs as part of its corporate restructuring. This was announced Thursday by the producer of Persil, Pril and Pritt. As a first step, the Dax Group wants to cut around 2,000 jobs by the end of 2023, mainly in sales and administration.
It is not yet clear how many jobs will be lost in Germany. However, most of the Henkel administration is based in the Düsseldorf office. In a second step, Henkel also wants to reduce costs in the areas of production and the supply chain, which will also lead to layoffs. Henkel did not provide a specific number.
Asked, Henkel boss Carsten Knobel explained that jobs would be cut “primarily in management”. “Our clear goal is to exclude redundancies for operational reasons.” Henkel expects savings of 500 million euros as a result of this step.
The background to the layoffs is the restructuring of Henkel’s consumer goods divisions into the new “Consumer Brands” business unit. CEO Knobel wants to merge the struggling cosmetics sector (“Schwarzkopf”, “Dial”, “Syoss”) with the sector of the best performing detergents and cleaners and its well-known brands such as Persil and Pril. Knobel expects faster decisions, more focused innovations and more growth from the new unit.
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The group employs 20,000 people in the affected divisions, 3,000 of them in Germany. In the first phase, one tenth of the employees of the two areas would be affected. Overall, Henkel has over 52,000 employees worldwide.
With the restructuring of the group, Knobel is reacting to the cosmetics division, which has been weakening for years. Analysts had repeatedly criticized the business being too small and not profitable enough compared to competitors like L’Oréal. More recently, Henkel only achieved a 9.5% margin in this division. Competitors such as Beiersdorf or Unilever, which, unlike Henkel, also offer luxury products and high-quality skin creams, achieve clear double-digit values here.
After the conversion, Henkel stands on two pillars
After the conversion, which is expected to be completed in 2023, Henkel will stand on two pillars of roughly the same size. The new combined consumer goods business accounts for 52% of sales and 45% of earnings before interest and tax (EBIT) in the 2021 data. The adhesives business is significantly more profitable for Henkel than selling cosmetics or detergents. In the adhesives sector, the traditional Düsseldorf group is regarded as a leader.
Henkel also wants to clean up its wallet further. Brands that aren’t profitable or aren’t growing fast enough should be suspended or sold. In the consumer sector, Henkel is currently investigating transactions with sales volumes of up to one billion euros. In the cosmetics division alone, brands worth € 184 million will be phased out this year. In 2021, the company had already sold or closed activities for a value of around 500 million euros, especially in the sector of personal care in need.
On the one hand, Henkel’s boss Knobel sees synergies through conversion. This means that sellers in both business divisions no longer have to negotiate with the same customers as they previously did. With the new division, which will therefore have a turnover of ten billion euros, Henkel also wants to be able to make acquisitions more easily, which so far do not fit either area.
“It is not the great liberation”
On the other hand, following the reorganization, Henkel has “a clear aspiration to increase our growth,” says Knobel. He expects to increase margins following the interruption of unprofitable activities. He wants to invest this money in existing brands to strengthen them – and therefore Henkel’s importance in the retail trade. He hopes this will make it easier to push through the price increases. Knobel even talks about a “positive cycle of self-sustaining growth”.
Company observers are skeptical. For them, the merger is a defensive cost-effective measure, which does not immediately lead to increased sales. “It’s not the great liberation,” says Jella Benner-Heinacher, who observes Henkel for the German Securities Association (DSW).
For Knobel’s plan to work, Henkel must first acquire a significant market share. For the expert, the procedure looks more like a “restructuring of the consumer business”.
Analysts have long recommended the group to either bolster the cosmetics industry through major acquisitions or to quit completely, something Henkel struggles with for traditional reasons. For Benner-Heinacher, on the other hand, the sale and cessation of brands represents “the beginning of the exit from the cosmetics business”.
Company watchers also see the opportunity for a spin-off into an adhesives company and a consumer goods company in the new division and expect increased revenues from that. But Knobel has repeatedly rejected these plans: “Clearly: no”.
The Henkel boss is aiming for organic sales growth of three to four percent for the Consumer Brands division. The target for Henkel’s former consumer business was two to three percent. Adjusted return on sales in the new division is expected to increase to a mid-range value of ten percent. In the cosmetics sector it was 2.1% in the last year and in detergents and detergents it was 12.1%.
Henkel is grappling with rising costs and the consequences of withdrawing from Russia
Henkel fired around 3,000 employees worldwide for the last time in 2008 as part of an austerity program. At the time, management was referring to rising raw material costs.
Henkel is still suffering enormously from it: just last week, the group had to admit that it was making lower profits than planned for the current year. Henkel expects additional costs of around two billion euros due to rising raw material prices and additional logistics costs.
>>> Read more: Henkel expects less profits: costs rise by two billion euros, shares collapse
Even during the Covid crisis, Henkel and its competitors were struggling with rising raw material costs and incomplete supply chains. The war in Ukraine and the resulting increase in energy prices have further worsened the situation.
In any case, Henkel is under pressure: in mid-April, after much hesitation, the company ended its operations in Russia. Henkel has invested in Russia like no other Dax group, achieved five percent of the group’s sales there, around one billion euros, and employs 2,500 people across eleven factories.
Last week Henkel announced that it would also withdraw from Russia’s ally Belarus. Mainly due to the withdrawal from Russia, Henkel expects “significant effects” on finances, but cannot yet quantify them in more detail.
Moreover: Shares and lower earnings: Henkel loses contact with competitors