To support its argument, it cites a memo written by McKinsey & Co., the consulting firm, to the board of Wal-Mart Stores, Inc. (NYSE: WMT) arguing "the cost of an associate with 7 years of tenure is almost 55 percent more than the cost of an associate with 1 year of tenure, yet there is no difference in his or her productivity."
Based on the comments I've received on this post and this one, I would conclude that the spirit of the McKinsey memo -- which seems to have motivated CC's management -- is utterly boneheaded. The same strategy that CC is using is the one that cost The Home Depot, Inc. (NYSE: HD) its best retail employees and quite a bit of business to its competitor, Lowe's Companies, Inc. (NYSE: LOW).
The following comment shows how using inexpensive retail floor staff drove sales from Home Depot to Lowe's:
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!
Can anyone explain why executives follow advice like that offered by McKinsey? I sure can't. But it seems scarily popular among the top ranks of American retail executives. If more executives like Bob Nardelli start losing their jobs after following this bad advice -- maybe there's hope for the people who work on the selling floor.
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 Home Depot, Lowes or Wal-Mart.