WeWork’s new chairman Marcelo Claure ripped up the company’s old business model in a staff presentation on Friday and promised that the lossmaking property group would shift away from taking on risky long-term leases in many cities, cutting to the heart of an issue that plagued its failed initial public offering.
Mr Claure told employees that the company would continue to sign its own leases in its top 12 or so markets, in places like New York and London, but would instead strike deals to manage properties for other landlords elsewhere, according to a person in attendance at an internal meeting. That would remove the risk that it gets stuck with vacant buildings in a downturn.
WeWork could also look to sign revenue-sharing deals with landlords in some markets and to open franchises in areas such as the Middle East and Africa, as it currently does in India, the person added.
The changes are part of Mr Claure’s plan to get the company to profitability, which has become a priority after its failure to seal a $9bn-plus fundraising via an IPO led to a cash crunch this autumn. SoftBank, the Japanese telecoms and technology group that is WeWork’s biggest backer, rescued it and installed Mr Claure as chairman last month.
He told employees that the company would be profitable after adjustments by 2021 and would begin to generate cash by 2023.
Mr Claure has added a handful of new executives to the company’s leadership team, the person in attendance said, including Maurice Lévy, the former chief executive of advertising company Publicis Groupe. Mr Levy will act as interim chief marketing and communications officer.
There are also two more executives joining from SoftBank: Ralf Wenzel, who was named WeWork’s chief product and experience officer, and Mike Bucy, to be chief transformation officer.
Artie Minson and Sebastian Gunningham, WeWork’s current co-chief executives, are remaining in their posts, but it is unclear how long they will stay at the company. The WeWork board was actively conducting a search for new leadership this November, according to multiple people briefed on the matter, but it has not yet provided an update on the process.
The shift in its business model is unlikely to have an immediate effect on the New York-based group’s finances. WeWork has opened nearly 300 offices in the past year and now counts 625 offices in 127 cities, and while it has dramatically slowed its new lease signings, it is expected to still open hundreds more later this year and in 2020.
The vast majority of the coming openings result from leases signed as part of an aggressive and costly growth strategy ahead of the planned IPO, the collapse of which culminated in the departure of Adam Neumann, co-founder and then-chief executive.
The presentation to staff on Friday follows weeks of lay-offs at the 14,000-person company, which began around the world earlier this month and hit WeWork’s Chelsea New York headquarters this week. The company said it cut 2,400 employees from its payroll. The figures did not include the roughly 1,000 janitorial staff who are being transferred to an outside contractor or the 1,000 staff members who joined the company through acquisitions that WeWork is now attempting to shed.
SoftBank is bankrolling a near-$10bn rescue package in an attempt to stabilise the company’s finances. WeWork has lost $5.4bn since the start of 2016, including $1.3bn in the third quarter of this year alone, and it disclosed to US regulators this year that it has $47bn worth of lease obligations outstanding.