L.L. Bean is offering voluntary early retirement bonuses to about 900 employees with the goal of shedding 10 percent of its U.S. workforce in order to free up cash to invest in expansion and automation.
The Freeport-based retailer and Maine’s fifth-largest private employer said it also is freezing its pension plan, enhancing its 401(k) retirement plan and adding other employee benefits such as parental leave. In addition, the company is considering changes to its lifetime return policy, such as requiring proof of purchase, to cut down on fraudulent returns.
The changes are designed to end the company’s recent period of relatively flat sales, L.L. Bean President and CEO Stephen Smith said.
“We haven’t grown much at all in the last couple of years, and we need to get back into the growth that we saw in the ‘80s and the ‘90s,” Smith said. “To grow, you need to be able to invest into growth, and there are some opportunities within the business to make some changes so that we can be more profitable and turn around and invest those profits back into the business.”
L.L. Bean, arguably Maine’s best-known brand, held informational sessions Thursday to inform employees about the changes. Although company officials prohibited the Press Herald from talking to employees immediately following the sessions, they did provide the names of two employees willing to talk to the media.
Laurie Gilman, retail events coordinator at L.L. Bean, said executives laid out a detailed case to workers for why the changes are necessary to keep the company profitable.
“I was actually surprised how few questions there were,” said Gilman, who helped run the sessions. “I think there was a lot of gratitude toward us for being up-front about everything.”
Susan Tufts, 56, runs the company’s health and wellness program. A 31-year employee, she would be eligible for the early retirement, but said she needs to continue working for the time being.
“I think people understand that if this business is going to be successful going forward, they have to make smart business decisions,” she said. “And that they’ll make those decisions based on what’s best for the employees and the business.”
FLAT SALES PROMPT CUTS
A provider of outdoor gear and apparel since 1912 when it was founded by Leon Leonwood Bean, the company reported sales of $1.6 billion last year, buoyed by the record sale of 600,000 pairs of its iconic Bean Hunting Boot.
But that overall performance was nearly flat compared with 2015, when sales were compromised by a balmy winter and frigid spring. The company also lost its longtime leader, Leon Gorman, in September of that year. Smith was hired the following January as CEO and president, and has since worked with staff, employees and the board to modernize and expand the company.
The voluntary retirement program will be offered to about 900 eligible employees, Smith said. The hope is that 500 will accept the deal, which would reduce L.L. Bean’s U.S. workforce from its current size of about 5,000 to 4,500 – a 10 percent reduction.
Still, Smith said the company has not set a specific downsizing target at this point.
“There isn’t really a goal for employment,” he said. “We know we need to get smaller.”
Since 2013, L.L. Bean has been investing in automation systems to boost productivity in its warehouse-management and order-fulfillment departments. It would like to extend the automation effort into other areas of the business. Smith said the goal is not to replace people but to boost capacity.
To be eligible for the early retirement program, a full- or part-time worker must be at least 55 years old as of Jan. 1, 2018, with at least 15 years of continuous employment at the company. Employees who accept the offer will receive a 20 percent boost to their company pension, $500 a month to offset health care insurance premiums for up to two years, and the option to receive their pension benefit as a single, lump-sum payment.
The company has not set a specific deadline for eligible workers to accept the offer, and employees will not be asked to make a decision until sometime in 2018, said Shawn Gorman, L.L. Bean’s executive chairman. Still, he is expecting a fairly high acceptance rate, which would eliminate the need for any subsequent layoffs.
“These are fairly generous retirement packages,” Gorman said. “People are fairly excited about these, actually.”
It won’t be the first time L.L. Bean has downsized by offering early retirement bonuses, the executives said. The company usually does so every seven or eight years, with the most recent offer being made in 2009. Company spokeswoman Carolyn Beem said that the acceptance rate for the past two offers was about 50 percent, and that no layoffs occurred.
Beem said L.L. Bean also is considering a change to its liberal lifetime return policy. Although no specific plans have been made, a possible change would be to require customers returning worn or damaged items to show that they actually purchased the items at L.L. Bean, and not at Goodwill or a yard sale.
“We are looking at efforts to reduce fraudulent returns,” she said.
As part of the business restructuring, L.L. Bean is making significant changes to its employee benefits.
As of Jan. 1, 2018, the company will no longer make additional contributions to the company pension plan, effectively “freezing” the pension fund. Workers will receive their accrued pensions when they retire, but there will be no additional accrual of pension funds and no new employees will be accepted into the plan.
In exchange, the retailer will roughly double its contribution to the employee 401(k) retirement plan. L.L. Bean already matches up to 4 percent of its employees’ annual salaries if they contribute 5 percent into the 401(k).
Starting Jan. 1, 2018, L.L. Bean will automatically enroll every employee into the 401(k) plan and contribute 2 percent of his or her annual pay into their account, whether or not the employee makes personal contributions to the plan. Even those already enrolled in the 401(k) will receive the additional 2 percent company contribution.
In addition, the L.L. Bean is promising a “discretionary” contribution to each worker’s 401(k) based on company performance. Gorman said the expectation is that the discretionary contribution usually will be an additional 2 percent, although the company is not committed to that specific amount.
“The expectation is that 2 percent will be achieved 95 percent of the time,” he said.
Smith and Gorman said they realize that employees approaching retirement age could be negatively affected by the pension freeze if they do not have substantial 401(k) funds. To help ease their transition, the company will contribute an additional 5 percent of annual pay into the 401(k) accounts of workers age 50 or older with 10 years of continuous employment with the company, or with 20 years of continuous employment regardless of their age.
Smith said L.L. Bean is the last major retailer to transition fully from a pension-based retirement system to one based solely on a 401(k) plan, and that its new retirement plan will offer greater benefits than any competitor.
“(The transition) improves the health of the core of our business, and it gets our (human resources) practices closer to market – actually market-leading,” he said. “The 401(k) becomes a market-leading benefit for us.”
Brad Smith, a partner at Boston-based investment consulting firm NEPC LLC, said there has been a long-term shift among private companies away from pension plans. Because employers with pension plans commit to paying employees a set amount upon retirement, the amount those employers must invest annually to maintain their commitment can fluctuate significantly from year to year. With a 401(k), there is no fluctuation because the employer merely contributes a set percentage of employees’ pay.
“It doesn’t surprise me,” he said about L.L. Bean’s pension freeze. “A lot of companies can’t deal with the uncertainty.”
Brad Smith noted that pension plans offer far greater financial security to employees than 401(k) plans, and he lamented the fact that so many companies, especially smaller ones, have moved away from them. Only about 20 percent of Fortune 500 companies still offer pension plans.
“With a pension fund, the company is responsible for everything,” he said.
L.L. Bean said it is making two additional changes to its employee-benefits plan in recognition of the fact that many workers are caring for young children, elderly parents, or both.
Starting in 2018, the retailer will implement paid leave programs for both elder care and parental leave, Stephen Smith said.
Because of the company’s explosive growth in the 1980s and 1990s, it has a significant number of older workers who may be caring for elderly parents and need the flexibility to take paid time off, he said. At the same time, L.L. Bean’s e-commerce business has attracted a lot of young people who may be caring for small children, Stephen Smith said. Other employees are part of the “sandwich generation,” a term for people who are caretakers for both children and elderly parents.
“We have an incredibly diverse workforce that now spans multiple generations,” he said. “We need to make sure that we are adding benefits that cross the spectrum for all those folks.”
Other large employers in Maine such as Wex Inc. have recently added paid parental leave as an employee benefit. Others, such as Idexx Laboratories Inc., have added paid “bonding leave” for adoptive parents.
J. Craig Anderson can be contacted at 791-6390 or at:
Correction: This story was updated at 9:28 a.m., Feb. 10, 2017, to reflect that L.L. Bean is Maine’s fifth-largest employer, not its fourth.