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SoftBank-backed hospitality giant Oyo may sack employees to cut costs

Oyo Hotels and Homes is likely to start 2020 at a low note.

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The Gurugram-headquartered hospitality unicorn backed by Japanese telecom major SoftBank is reportedly planning a massive layoff in India, its stronghold where it claims to have about 10,000 properties.

While a local new website Entrackr reported the company is in the process of giving pink slips to 500 employees, a business newspaper Economic Times (ET) reported this number to be around 2,000 pan India, and across functions.

As the company seeks to make its systems “more tech-enabled” it’s letting go of people and divisions like sales, supply, and operations will account for a chunk of the layoffs, the ET report said citing people familiar with the matter.

In a written response to KrASIA, Oyo said it does not have any plans to let go of 2,000 people. However, it said, it does see technology replacing select roles in various business engagement buckets. “Every such team member is given another opportunity. For example, some folks from sales could become a part of the centralized customer service or business development team,” a company spokesperson said.

Oyo said it has a performance-based system of grading, where every month the company evaluates employees, and if there is no improvement, they are replaced by relevant candidates. The company also denied the replacement of thousands of people in the near term.

According to the Entrackr report, over 400 employees across the partner-facing experience team and business development functions may lose their jobs. ET reported that Oyo has already fired 120 out of 180 people in its Mumbai sales team and that it might keep only 8-10 sales executives in each branch.

After SoftBank’s much-touted portfolio company WeWork postponed its IPO in September, followed by a subsequent valuation crash, the Masayoshi Son-led investment firm is rumored to be pushing its portfolio companies on the path of profitability. This approach might have led Oyo to do some course correction including cutting costs with layoffs. Oyo, that recently raised USD 1.5 billion from SoftBank Group and RA Hospitality saw its losses shoot up this year. A report by travel research firm Skift said, between April and June, Oyo’s net loss before tax was USD 181 million, “which was alarmingly equal to 54% of the net loss of USD 332 million it had for the full year through March 30 (FY19).”

While Oyo has maintained that it grades employee performance every month, and only those found unsatisfactory are laid off, according to media reports, some of the employees with satisfactory performance are also asked to go.

India’s second most valuable startup, employs 10,000 to 12,000 employees on its payroll, as per Entrackr.

In June, Chinese media had reported that Oyo has laid off 1,000 people from its China team, which Oyo completely denied. In August, ET reported the hotel startup fired 60 salespeople from its New Delhi and Gurugram offices for not meeting targets. The former employees that KrASIA spoke to earlier said the company sets aggressive targets for everyone such as bringing hundreds of new corporate partners on board every month.

The Entrackr report said in cities such as Hyderabad, Mumbai, and the National Capital Region, some of the teams including the partner-facing experience team, are being demolished and its members are being absorbed into the business development (BD) team.

However, according to Oyo, the company has been moving some partner engagement roles from field to a combination of technology and center-led specialized roles.

Of late, Oyo has made changes in its leadership team. In November, it appointed Betsy Atkins, CEO and founder of investment firm Baja Corporation as an independent director on its board. Earlier in December, Oyo named Rohit Kapoor, who was heading its new real estate business since December 2018, as the new CEO for India and South Asia. Kapoor replaced Aditya Ghosh, who was elevated to a board position at the company.

Among the “top priorities for Kapoor was to execute the layoff plan” that has been in works for some time, a source told Entrackr, adding that the layoffs are in line with Oyo’s strategy to curb expenses and bring efficiency across departments.

Meanwhile, there is an ongoing confrontation between Oyo and various state hotel associations representing hundreds of hotels in India over the breach of contract including cutting down the minimum guarantee fee that the hotel startup promises to give to its hotel partners every month while signing up.

Separately, Oyo has run into more trouble in Japan, where it entered in April 2019. Initially, it had laid out plans of signing up 75,000 rooms under its brand by March 2020. However, it was able to get only 4,000 rooms on board by September 2019. A recent Nikkei Asian Review report said, “Oyo’s failure to meet this very unrealistic goal had subsequently led Oyo to renege on some employment contracts.”

In November, Yahoo Japan exited the joint venture with the Indian hotel tech startup by selling its 30% stake in Oyo Technology and Hospitality Japan, operator of the Oyo Life service in the country.