Circuit City Stores, Inc. (NYSE: CC) has really crossed the line with its latest cost cutting move. By chopping 3,400 of its most highly paid retail staffers, the country's second-biggest electronics retailer is making a losing bet that the drop in sales resulting from canning its best sales people will be more than offset by the lower pay that it gives to the less capable replacements.
Comments I received on yesterday's post suggest that Circuit City made the wrong call. Here's an example:
"I was one of the people laid off and I can guarantee that the service will decline by leaps and bounds. The seven of us that were laid off at the CC I worked at, ran the store. All of us had been there 5+ years. Circuit City states they gave us severance- 4-8 weeks pay doesn't go very far. One of the guys that was laid off had been with CC for 20+ years and was number one in the company in selling warranty. They laid off the best people!!! It just doesn't make sense. It is crazy that they think a 5 or 10 year employee could be replaced with an untrained $8 hour employee. Good Luck with that CC. I'll be at Best Buy....with all of my former Circuit City customers!"
But the key to doing that successfully is to attract and motivate the best people. If employees are happy, they'll give customers better service. And customers will keep coming back for more. As a result, the business will make more money since it doesn't need to keep spending to attract new customers.
But by driving out its best personnel, Circuit City will lose those people -- and their loyal customers -- to its top-ranked rival Best Buy Co., Inc. (NYSE: BBY). And while it might save some money in the short term by replacing those people with lower paid ones, the company will end up needing to spend more on marketing to replace the lost customers.
Investors -- who sliced 4% off its stock price -- can see right through Circuit City's shallow management thinking. And that's a good thing for retail workers -- if Circuit City's ruthless plan boosted profits and stock price, retailers worldwide would be lining up to copy it.
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 Best Buy or Circuit City.











Reader Comments (Page 1 of 2)
3-31-2007 @ 1:05AM
G Hein said...
I'll bet many corporations are watching closely to see what happens, interested in doing the same thing to the rest of us.Send them an E-Mail, tell them what you think and if you agree with them shop there more often and if you don't, then avoid them like the plague they are.
3-31-2007 @ 2:28AM
John Doe said...
I'm sure this does not belong here but I'm sure there are some members who agree
If you don't support circuit city's actions sign and pass to a 10 friend's:-)
http://www.petitiononline.com/NOCCITY/petition.html
4-02-2007 @ 7:27AM
Linda said...
Does anyone remember what happened at CC 5 yrs ago in Feb?? They took all their commissioned sales people, again the top earners in the company, led them into a back office one at a time, and terminated their employment. They then led them to their lockers and escorted them out of the store one, by one, as if they had done something wrong!!! Yes, I am a former employee, but had already quit the previous Aug.
CC had no heart 5 yrs ago, and it has nothing left now! These 3400 are human beings with families to support, some of them the only bread winner in the household, of children, disabled family members, and elderly to care for! What would you do if your job was taken away from you? How would you pay for your medicine, your utilities, and your housing???
This is why no one in my family and friends group has shopped at CC for over 5 yrs!!!
I hope the Federal government steps in as this is a mass layoff, and helps these people get back on their feet. My heart goes out to them and their families, and I pray that everything will work out for them.
My recent purchase of computer, and laptop was not made at CC, and I hope everyone else in the country takes this as a warning that you cann't create good business by getting rid of your solid footing. CC should be ashamed of themselves, but I know they are not. Linda
3-31-2007 @ 7:50AM
howard08817 said...
A company does not 'save' money by dumbing down its front-line employees. I work for a healthcare firm that reviews medical bills for presentation to commercial health insurers, workmen's comp carriers, and auto insurers. The company hires the cheapest help it can get. I am working there for the benefits, fortunately I don't have to live on the paycheck. I pointed out to my management that I estimate that the company is walking away from 15-25,000 dollars a week due to incompetent handling of claims. My manager's response? Just mind your own business.
Hey, welcome to America!
The Big H.
3-31-2007 @ 10:17AM
Gerry said...
A co-worker of mine told me Friday that his nieghbor went to Circuit City Thursday to buy a Plasma TV. The employees in that department (the ones that had NOT already been canned) told him about the firings, and suggested he buy the TV at Best Buy. He did.
3-31-2007 @ 11:09AM
JDHoss said...
I have been a loyal Circuit City customer for several years. The main reason was the expertise of their employees, as well as competitive pricing. It looks like my loyalty just ended with their announcement of the firings. Despicable.....only word I could think of.
3-31-2007 @ 12:19PM
Jason said...
Corporate America is so far out of touch with its work force and sales force as they try to cater to their stock holders. What CC thinks they will gain on the front side they will loose on the back side. I am a sales rep in the service industry for a fortune 120 company w/ 6 yrs experience and rank in the top 1% of my peers but feel no job security as the trend seems to be an attempt to replace the higher paid performers with the lower paid less experienced (if they can fog a mirror, they can sell mentality) warm body.
See Ya, at another retailer!!!
Jason
3-31-2007 @ 12:20PM
Mark Ames said...
Only time will tell. Having worked at Circuit City I believe that this move might be a good one. I know of many overpaid people that worked in the same store I did that weren't producing sales and in fact were causing customer service issues. Depending on the quality of work these "overpaid" people were doing this might be a step in the right direction. Generally speaking I would clean house by getting rid of overpaid management before sales associates but you never know. I will still shop at CC until such time as the service declines to equal that of Best Buy, which I detest. Again, only time will tell.
3-31-2007 @ 2:50PM
Gerald said...
I am a former cc employee. I left a little over a year ago, I saw the writing on the wall back then. At that time their mission was to be one of the top 100 company's you would want to work for.They were saying one thing & doing another. I know someone who has been there 15 years, he got 4 weeks severance. He was loyal to Circuit City, they were not loyal to him. Even after I left, I would recomend Circuit City to people looking for electronics. Not anymore. I think they made a huge mistake, as word gets around they will have a hard time hiring & keeping loyal employees, and their sales will suffer for it.
Gerald
4-01-2007 @ 7:59AM
howard08817 said...
One more comment, I really relate to this stream. Yesterday (Saturday) I went to Home Depot to check out sump pumps. My basement has started filling with water - first time in 16 years. Ok, most houses have sump pumps anyway. There were three girls (none could have been over 24 or so), standing around in their orange home depot aprons and discussing what they were doing Saturday night, and who they were going to leave the kids with so they could party. You get the picture. I stood there in front of them, obviously a customer. They ignored me, 2 feet away from them, for probably 2 minutes. Finally I just interupted and asked if they could help me with sump pump or basement waterproofing info. Two of them turned their backs and just walked away, the third said she didn't know anything about sump pumps, said I should go over to Lowes, they know about those things. I kid you not! I drove over to Lowes, about 2 miles away, spoke to a salesman, and I have a Lowes contracter coming over Wednesday to install a sump pump - Home Depot hires the cheapest and they lost a $2500 sale!
The Big H.
4-02-2007 @ 10:42AM
Vincent Battani said...
I work at Circuit City currently, and this move was devastating. The 3 people that got fired at my current job were the hardest working people, and they drove business. We are all very upset. Also the other store i worked at a guy who opened the store 10 years ago, got fired because of this move. I am currently looking for another job, this cut is just like what walmart does, keeping their employees under a wage and when they get to the top letting them go. This is a bad move because Circuit City wants to be known for their customer service, but how can they do that when they fired everyone who had the most experience.
4-01-2007 @ 10:11PM
Davy said...
I am a manager for Circuit City and have been employed there for more than 10 years. This has got to be one of the stupidest things that I have seen at Circuit City. I could understand if these people were fired because they were overpaid and not producing results. This was not the case. These people were fired because they were $0.51 or more over a cap that has been established. How do you get over the cap? If you have a great review, which is given twice a year, you get a $.50 an hour raise. Even a mediocre review gets you a $.25 hour raise. It doesn't take many years of service to get you over this cap if you get your normal reviews. What Circuit City did is fire the people who had the longest time on the job, the most loyalty despite of the BS they have had to deal with and those who performed the best and got the higher pay raise. As a company, the only thing going for us compared to the competition was product knowledge and customer service. This was given by our excellent associates, the ones that are no longer employed. These wonderful associates have made me look great as a manager on many occassions and have made me a lot of money in bonuses. Yes, I get bonused for their hard work and excellent performance. During the last 2 years, Circuit has been hiring managers from outside of the company, mainly from Best Buy and paying them about $20k a year to start more than a manager who worked their way up through the company. If you want to cut expenses, start here. Why would a manager working for Best Buy jump ship and work for Circuit? More money or maybe they sucked at their job and found a stupid set of corporate morons who were willing to pay them more for their incompetency. The newest management for Circuit City, including the CEO is a former Best Buy guy. They obviously do not realize that a company is not made great by it's management but instead by the great people that they hire. We just fired these great people simply because they were loyal or they were great at their jobs. Great going Circuit. Maybe you'll get around to firing your best front line managers like myself at the store level because we make too much because of our time on the job or our performance. I would actually welcome the severance package so that I can move on, if I don't find somewhere else to work first. I would love to take my talent to a competitor and be in your face as you go out of business. I really hope that customer's see through your stupidity and shop elsewhere.
4-02-2007 @ 12:11AM
silva said...
Hello I am one of the 3400 workers that was laid off. I worked in the colorado region. I am deeply upset and felt betrayed because i made too much(.51)over the cap and that is what exactly they told me. As sat in the room hearing my fate i asked my store director so all of are being punished for getting good reviews which led to raises. I could not get a response or even an answer! We talk about helping or proctecting our employee's "that was a lie"!!!!!
i have worked for this company for 10yrs and this is how they repay me by letting me go because i was over the salary cap of .51 that is crap! what makes me also made is my customer's that i will miss cc took that away from me and now i can't even walk in a cc anymore. i think this is the beginning because the 3400 employee's that were laid off were the first layer of the cake expect more to come and then cc will be out of business. let's cross our fingers!!!! what comes around goes around! maybe, everybody at corp should be laid off and then reapply for a lower wage?
4-02-2007 @ 1:20AM
Ecesis said...
Big brother is laughing at everyone, what and why do you think the stock market is so high or why companies senior members make so much money. Because of the people in the everyday grind and your contribution to a 401K plan that buys the Circuit City Stock and the right off the company gets to make when they put in their percentage.
Everyone in this blog is saying I won’t buy from CC, but check the parking lot in a couple of months after the air has cleared and it will be full. Check out Martha’s Stewarts stock I should have bought after she was sent to jail and it tanked, I would have made a little money. And the Enron guys all I see is a lot of poor people that got screwed and truly the big wigs of Enron got of light in my book. Expect for the head honcho who apparently died of a heart attach kicking it up in his “cabin” in Colorado. If it was you or me who did this crime, we would have gotten the chair.
Do you really want to send a message, take it to the street? Tell you’re elected officials if they don’t do something about the misdeeds done to the employees of this nation that you’ll find someone else. Remember this one” For the People By the People”. If you elected an idiot you can have them removed it’s just that Americans are complacent and don’t care, oooh I still have my big car and my big house why should I get involved. The back bone of this country is fragmented, united we can change it, divided, stop complaining and get on with your meager lives.
Maybe we should hire illegals as our representatives, they know how the system works, and they get free medical, education, housing, food and jobs, this is my rant good night…..
4-03-2007 @ 1:47AM
xcrytonx said...
Most people dont know this.......... Best Buy did the same thing exactly a year ago!!!! My Wife who was a sales manager and segment manager for Best buy was layed off with about 2-3 thousand other people but it was called a restructuring. Basicly in Best buy every one works to make it to segment managers or Slaes leaders then they get their own stores. They also make the most, My wife made around 70k++ depending on bonuses. So ya they were all laid off! They didnt even offer her the Supervisor position that was open in the store, they gave her 4 weeks severance and that was it. Sad thing was they had just moved moved her 300 miles from home about 6 months before and left us with a year lease and all sorts of other crap we had to deal with that was directly cuased by Best Buy and thier need to cut cost.
Also after that "layoff" at best Buy last year thier employees (for months) fled, ran and begged for jobs at Circuit City becouse of how horrible Best Buy treated thier employees during the that year and asicly gave everyone the heads up that there is NO job security at Best Buy. The Store my wife was from lost 4 out 6 (yes 4 out of 6!) mangers to Circuit City with in 2 months of the wide spead "layoff".
Well guess what!???!!! They just all got laid off.... every one of them.......
4-05-2007 @ 11:56PM
E Stewart said...
Dummies...I feel like going to CC & opening the door and saying out loud "Either hire the employees back or you're never see me again" Yes I shopped there for the music & software. Management dont think sometimes and it showed.
4-05-2007 @ 3:00AM
Pacman3402 said...
I applaud the 3 former CC employees from California in filing a class action lawsuit against Circuit City. It is time that Circuit City get sued. The CEO of Circuit City gets paid over $8 Million a year, he should be the first one to go for exhorbitant pay, that is, if they really want to cut cost, then he can re-apply after 10 weeks at a lower pay scale. Other retailers like Best Buy doesn't pay their CEO like Circuit City.
4-05-2007 @ 10:28AM
orphanhaiku said...
Check out the wicked satire of Circuit City at:
http://cantankerousconsultant.blogspot.com/2007/04/hedgogs-to-warthogs.html
4-06-2007 @ 11:46PM
Hoffa said...
The only recourse for people like this is to join a union. Basically employees today are unprotected. If you ae represented by a union at least you have the chance to fight for your job.
4-08-2007 @ 11:48AM
ag said...
I just have to comment about the "restructuring" that BBY made about a year ago. We did not lay off anyone. We gave everyone the option of taking the severence package or stepping into a different position. I know this because I had a lot of co-workers that were involved. Most of the employees involved were at the district or corporate level. I have been with the company about 4 years. I have never more sense of job security before. BBY is a great company to work for. By the way one of our core values: "Learn from challange and change". Every company has to make changes, if you stay the same you will end up like the ones who have fallen. I do not agree with what CC did and we welcome all of you with open arms to BBY!!