Monday, May 07, 2007

Circuit City still a loser

In March, Circuit City decided to axe 3,400 experienced, knowledgeable workers and replace them with lower-paid hires. So, how is that working out for them? From a PR standpoint, not too well.

Angry consumers are boycotting Circuit City stores across the country:
Gary Cleek, 57, of Kingsport, Tenn., said the firings were enough to make him stop shopping at Circuit City. "I don't view someone who works for a living as a commodity."
Neither do labor unions who are also getting involved by staging informational pickets, and one AFL-CIO local is even holding a protest rally at a Circuit City store in Roseville, Illinois today.

What about profits? Did the firings help Circuit City's bottom line? Nope, the company recently
reported it may have a loss of $80-90 million before taxes after sales fell "substantially below-plan," and analysts say the job cuts are backfiring.
[...] Analysts said Circuit City had cast off some of its most experienced and successful people and was losing business to competitors who have better-trained employees.

"I think even though sales were soft in March, this is clearly why April sales were worse. They were replaced with less knowledgeable associates," said Tim Allen, an analyst with Jefferies & Co.
Television sales were especially disappointing, which could also be a result of softening consumer spending and end up hurting other retailers like Best Buy, but analysts believe Circuit City's problems are for the most part a direct result of dumping their experienced workers.
[...] Baker also said Circuit City's situation is mostly a result of its loss of informed workers. Best Buy "will fare better because of market share gains driven by weakening customer service at Circuit City," he wrote. "We believe that Circuit City's store labor change . . . likely has had a worse than expected impact on Circuit City's service levels and has enabled [Best Buy] to take share."
Investors should be furious with Circuit City's CEO Philip Schoonover who was paid $8.52 million in fiscal 2006. You would think a highly paid, educated man would know better than to cut his experienced sales staff. As Samuel Culbert, professor of human resources and organization at the University of California at Los Angeles said, "There is nothing more important than relationships in commerce."

Maybe the only relationship Schoonover is concerned about is the one between him and the board of directors. What does he care if consumers take their business to a store with better customer service - he already made his money.

6 comments:

abi said...

Incredibly short-sighted and short-term thinking, isn't it? I hope it really blows up in their face, so other companies are discouraged from trying it.

Praguetwin said...

Cutting experienced labor in the current labor market is nothing short of attempted suicide.

Kathy said...

Abi & PT, I don't think CEOs really care whether the business survives or not. As long as they get theirs, then what do they care?

Kvatch said...

Circuit City is simply following Best Buy's lead in placing people with the intelligence of hair in their sales positions. If you anyone thinks that Best Buy is going to gain share because of superior, more knowledgeable sales staff, they should think again.

Kathy said...

Kvatch, the intelligence of hair, huh? I assume you mean blond hair? ;-)

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