What a way to start the new year. That’s likely on the minds of several folks at Compass as the company kicked off 2023 with a series of belt-tightening moves that offer a glimpse into how the company is weathering the challenging market conditions.
The New York-based brokerage announced in an SEC filing that it would implement another wave of layoffs as it continues its cost reduction efforts that started in June 2021.
“This cost management work is designed to both address current and expected market conditions as well as to align the Company’s cost base to support its ongoing strategic growth objectives,” Compass stated in its filing.
Compass estimates that it will spend between $10 million and $12 million for severance and other termination benefits for employees whose roles were or are being eliminated during the first quarter of 2023.
Thursday’s announcement comes months after Compass executives signaled that further labor cuts would be on the horizon during its third quarter earnings conference call in November.
This marks Compass’ third wave of layoffs since June 2021 when the company announced that it was firing 10% of its staff amid signals of a slowing housing market and economy.
Then, in September, the company implemented further staff cuts, including firing former Chief Technology Officer Joseph Sirosh and several technology team members.
The brokerage indicated that the layoffs wouldn’t impact the U.S. technology engineering team, as it prioritizes its technology platform.
According to Insider reports, Compass CEO Robert Reffkin told staff members that the layoffs were in response to persisting economic challenges in a Thursday morning memo.
“As entrepreneurs, you are no strangers to managing your business and expenses to ensure your long-term success, especially in difficult economic times,” Reffkin wrote in the email. “As I have mentioned to you and shared publicly over the past few months, we have been doing the same things here at the company level. Like you, we’ve been focused over the last year on controlling our costs.”
While Compass declined RISMedia requests for comments on the announcement, Insider reports suggest that the scope of the layoffs will impact roughly 10% of Compass’ remaining staff—around 350 employees.
“While decisions like these are always hard, they are prudent and allow us to continue to build a long-term, successful business for all of you,” Reffkin stated in the memo.
Compass’ belt tightening extends further than layoffs though.
On Friday, a Compass spokesperson confirmed to RISMedia that industry reports stating that the brokerage had begun looking to sublease its headquarters in Manhattan were true.
With the help of a CBRE team led by Paul Amrich, Compass is looking to lease 89,000 square feet of office space that it currently occupies at 90 Fifth Ave. in Manhattan—stretching from floors three to 11. Industry reports indicate that the firm also had sublease space on the fifth and eighth floor prior to the pandemic.
Compass declined to comment further about subletting its headquarters.
This marks one of the more shocking moves that Compass has taken as it tries to weather headwinds in the housing market and make good on its plans to become “free-cash-flow positive” this year.
While Compass looks to sublet its headquarters, company executives indicated in industry reports that the move isn’t a sign of financial turmoil.
Compass tallied $153 million in net losses at the time, along with a 14% decline in earnings from the prior year, which company executives attributed to rapid shifts in the housing market and a “generationally bad year in residential real estate.”
“The past 12 months have been tough, and the next 18 months appear that they can be tougher,” said Reffkin in a November conference call with investors.
At the time, Reffikin stressed that Compass would focus on weathering market headwinds and coming out on the other side. Part of that gameplan included cutting back on its investment in technology while also eliminating the use of financial incentives—equity or cash incentives—to recruit new agents in the future.
Reffkin and Compass COO Greg Hart said they were confident that the firm would continue reeling in new agents and retaining current ones on account of the strength of its existing tech platform and presence in markets across the U.S.
“Despite fierce economic headwinds, our core business continues to strengthen based on our ability to continue to add agents, improve our technology advantage and maintain our industry-leading principal agent retention of over 90%,” Hart said in November.