Juul CEO Lays Out Plans for ‘Sustainable Path’ to Steady Firm

(Bloomberg) -- Juul Labs Inc. will lay off a third of its workforce, exit several countries and relocate its headquarters in an effort to set the e-cigarette giant on “a sustainable path” after declining sales and a regulatory crackdown forced the company to rethink its strategy, Chief Executive Officer K.C. Crosthwaite explained in a virtual meeting with employees Tuesday.

Cutting 900 jobs will help “to align the organization with where we are today,” Crosthwaite said in an email after the meeting, which was streamed around the globe to employees, who could submit questions on Slack. Taken on top of the 650 positions eliminated late last year, Juul will have slashed its workforce by almost 40% in one year. It’s a dramatic turn for a company that was hiring 300 people a month at one point.

In addition, Juul will stop doing business in South Korea and explore its options in Austria, Belgium, France, Portugal and Spain after concluding those markets aren’t sustainable.

“This may feel like a retreat from the international market, but it is not,” Crosthwaite said. “Rather, it is about setting up the company for long-term success. We will no longer scale for the sake of expansion.”

Juul’s fortunes have fallen in the past year. Until last summer, it was rapidly expanding and increasing spending, buying a pricey office building in San Francisco. Sales skyrocketed 516% between 2017 and 2018, according to a recent financial disclosure viewed by Bloomberg News. In 2019, revenue topped $2 billion. But general and administrative expenses almost tripled from the previous year, to $1.3 billion, and the company took $69 million in restructuring and other charges, leading to a net loss of $1 billion, according to the document.

New Headquarters

As concern grew last year over Juul’s popularity with young people, federal investigators targeted the company, as well as its ties with cigarette giant Altria Group Inc., which holds a 35% stake. Last month, antitrust regulators sued to unwind the deal. In addition, Juul is fighting a barrage of product-liability lawsuits and as well as suits by state attorneys general and school districts. The company denies marketing to minors.

In an apparent bid to reset its relationship with regulators, Juul will also move its headquarters to Washington, D.C., from San Francisco.

“Taken together, these steps will put Juul Labs on a sustainable pathway -- one that will ultimately allow us to invest and grow for the future,” Crosthwaite said. However Juul won’t leave San Francisco, where it’s trying to sell the office building, Crosthwaite said in the email. The city and Silicon Valley “capture the technological spirit of our company.”

Employees in the U.S. and Canada will have the option to leave voluntarily. In the U.S., anyone who takes it will go on administrative leave, meaning they’ll receive pay and benefits at least through July 24, according to a separate email that was viewed by Bloomberg News. They’ll receive subsidies for health insurance through the end of the year, as well as a pro-rated final installment of a retention bonus introduced when Altria invested in 2018. Juul will notify anyone else to be laid off in the U.S. and Canada to meet the 900-job goal the week of May 18, according to Crosthwaite’s email.

One employee asked whether executives would take a paycut, according to people with knowledge of the meeting. Crosthwaite said he would hold all executives accountable, without going into specifics. Since joining in September, Crosthwaite has scaled back the executive team significantly.

A spokesman for Juul declined to comment.

While Juul still holds 60% of the e-cigarette market, its sales have fallen about 10% over the past year, according to data from market research firm IRI. And it faces still another hurdle: The FDA has required Juul and its competitors to apply by Sept. 9 for authorization to continue selling its products.

©2020 Bloomberg L.P.