Circuit City layoffs set a scary precedent for workers

Posted Mar 29th 2007 2:45PM by Peter Cohan
Filed under: Circuit City Stores (CC)

Circuit City Stores Inc. (NYSE: CC) is replacing its experienced workers with cheaper models. What does Circuit City's replacing of its retail workers mean for workers and their salaries across the board? Is it unusual for a company to be so upfront about its plans to do something like this?

I think it's not unusual for companies to replace workers with lower priced ones -- it happens whenever companies outsource jobs. Layoffs and buyouts have been common as companies respond to pressures from Wall Street and global competitors. In 2006, for example, 72,000 U.S. auto workers agreed to quit or take early retirement. And some companies, including Albertsons, Ralphs and Vons grocery chains, have adopted two-tier systems that provide lower wages and less valuable benefits to newer employees

However, it is very unusual for companies to be so upfront about what they are planning to do and why. Circuit City's decision to fire 3,400 of its highest-paid sales staff and replace them with lower-paid workers is a risky strategy to cut costs that goes beyond the traditional layoffs, buyouts and hiring freezes used by struggling companies.

I think this is a risky move because the quality of service to customers will almost certainly decline since the higher paid people who were fired will take with them product expertise that consumers found helpful. Circuit City is gambling that the sales it loses as a result of the less experienced staff will be more than offset by the lower pay the new rookies receive.

I think Circuit City's move is a warning signal for many retail workers -- particularly workers whose employers compete on price, rather than service. If Circuit City's plan leads to a profit revival I think many other retailers will try it. And then the impact could be quite widespread throughout the economy as fired retail workers struggle to find employment elsewhere -- possibly in lower paying jobs.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Circuit City.

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Reader Comments (Page 3 of 3)

4-25-2007 @ 10:35AM

Chad Pierce said...

I feel for all of you that were laid off here recently. I was involved in the first lay off of commissoned sales counselors back years ago so I know how it feels to be fired for doing your job and doing it damn good too. We were all let go striclty because of the money we made, not to mention how much money we made the company. I no longer shop there and many of my old loyal customers do either. They should cut some of their higher paid officials that make millions a year in half and keep the employees that basically made the numbers at the store level. I hope that all that were involved in making the decisions of both layoffs the company has done, lose their jobs as well. I would rather have my way with the son of a bitches in a locked room one at a time, their pain would be much worse than any pain us laid offemployess endured from this. I hope they all rot in hell. A former loyal circuit city employee from Rocky Mount NC store...

5-31-2007 @ 3:23AM

Anonymous said...

Yeah stop shopping at circuit city so the other 40,000+ employees get fired. Great fken idea dumbasses.

5-30-2007 @ 11:05PM

DC said...

I want to say first that I have nothing to do with either Circuit City or Best Buy. I strongly believe that this is an unfortunate situation for Circuit City, I also believe that everyone is condemming this retailer for things that have been done by many other companies over recent years. Do you think that the jobs lost by American workers to cheaper labor in the Orient, India, and Mexico is any different? I work for a company that has ended hundreds of jobs for cheaper labor provided by IBM in India. Are the employees that I used to work for any different than the unfortunate people at Circuit City? It's not to me. I believe the only difference here is the way Circuit City publicly announced the issue.

The reality is that todays US corporations are faced with making employment decisions that befit the bottom line that their shareholders demand. Unfortunately, many jobs are lost in the meantime.

So if you thing the better place for your purchases is Best Buy, so be it. They're both great retailers, one was just smarter with many of its business plans.

Think about this when you call for tech support on your new electronics product, and the person on the other side of the phone is from India.

6-05-2007 @ 10:22PM

C. Dyer said...

CC showed me their true colors when I went to apply for a job there a few years ago; they would only accept applications accompanied by a signed agreement never to sue them over their policies. I declined!

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