Retrenchment

Definition of Retrenchment

Retrenchment in business occurs when they cut down or reduce something to become more financially stable.

When does a business use retrenchment?

• Retrenchment could occur during a recession
• It could occur when a company is going through financial difficulty
• The impact of an economic shock to the economy such as the coronavirus
• A firm could retrench if its costs are too high
• A merger or acquisition could cause retrenchment

Examples of business retrenchment

1. Redundancies & job losses
2. Reduce output
3. Use fewer materials to lower costs of production

Retrenchment Case Studies

• Tesco’s CEO Philip Clarke planned to close all operations in India, China and the USA. The US expansion through the Fresh & Easy brand was especially costly and damaging to their brand. They lost over 1bn through this international venture that failed to lead to large scale retrenchment. 
• Ford cut 18,000 jobs worldwide in 2001 through its retrenchment strategy.

What impacts the level of Retrenchment?

The impact of retrenchment depends on the amount of retrenchment conducted by the business and the time period it was conducted over.