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Weird-Mart: Tales of the Bizarre from the Walmart AislesCircuit 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.
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Reader Comments (Page 2 of 2)
4-10-2007 @ 7:38PM
Julie said...
Frazee Vergas Schools in Minnesota is doing the exact same thing to teachers. They are nonrenewing all the probationary teachers and telling them they can reapply for their jobs at entry level pay. For the Physics teacher at the school that would be a paycut of almost $11,000. What a lesson to teach kids and how about the education kids will receive with a rotating door of teachers. So I expect this to happen more often and in every job.
5-30-2007 @ 5:25PM
Tyson Dixon said...
I'm a S&I Manager at Circuit City well I will be until 6:00 tonite...they are doing more cutbacks and this time to the management. They basically are trying to mimick BBY in all aspects from the look of it to me, what they fail to realize is that all they are doing is appearing to be weak and acared...I'm a firm believer in leading from the front and their allowing best buy to do that for them, they will fail and we all will sit back and watch as the buy out goes through and they turn into nothing.....oh no the ships sinking lets kill everyone on board and move forward....idiots
5-30-2007 @ 10:10PM
Melder said...
What?!?! Wow... I'm sorry to hear that. I thought you did a great job, man. It sounds like I'll be looking for another place to work. Let me know if there is anything I can do for you.
5-31-2007 @ 2:11AM
merly silva said...
breaking news!!!!!Circuit city just fired all of their roadshop mgrs, video mgrs and computer mgrs nationwide!!!!!!! they did again!
6-13-2007 @ 11:39AM
Charlie said...
I just wanted to say that I was a former employee of CC for 2 years. I helped develope an Employee Experience Committee, and donated a lot to the Employee Disaster Fund. Well, this may not be a tornado, but I can tell you that if I want to reapply for my position, I have to take a $5.20 pay cut per hour. If this isn't a disaster, then I don't know what is. My husband and I make very little money. The CC I hired in at had a higher cost of living. I hired in at $8.50 an hour. With raises and one promotion I made it to $11.70 an hour after working my ass off and being the top attatchment, credit app, and warranty associate. I created contests and bake sales to help raise funds for charities and store events to keep the associates happy. I had to transfer because my husband is military. The new store I transferred to hires in at $6.50 an hour. In my old store, the cap was higher. I wish I would have known then I would have slacked off and gotten smaller raises! I worked my butt off for this company. I came in on my days off. I befriended Human Resources, and knew every person in my store including the newbies I helped train and hire. I was not managment, and yet, I dedicated my life to the company hoping to one day climb the ladder to corporate when my husband gets transfered to Virginia. This was not expected and I did not receive a four week severence package. My last check was for $458.28. I made $11.70 an hour working 31 hours a week. They must have based it at part time hours which I was oart time, but working many hours. I have heard recently that there is a class action lawsuit filed. Something about having to be rehired in at a lower pay. If you know anything about this, I would love to join it. To me, this was personal, and I will never step foot in their store unless they agree to rehire me for more than $6.50 an hour!