Circuit City Cuts Wages to Juice Profits Circuit City Stores (CC) said Mar. 28 that it’s planning to lay off around 3,400 store employees – but only to hire them again at lower wages. The Richmond, (Va.) consumer electronics retailer will also outsource its information technology department and possibly sell its Canadian unit InterTAN, in an effort to manage costs and survive better in its battles against rivals. Circuit City is hoping to cut its expenses by around $110 million during fiscal 2008 and at least $140 million beginning in fiscal 2009. "We are taking a number of aggressive actions to improve our cost and expense structure, which will better position us for improved and sustainable returns in today’s marketplace," said CEO Philip J. Schoonover in a press release Mar. 28.
Whenever profits fall, what’s the first thing to do? Business 101, aka "The CEO’s Pocket Guide to Better Earnings" dictates that the fastest way is to cut headcount and salaries. Definitely a short-term win. But let’s look at this some more. Why don’t people go to Circuit City? Their return policy is not as good as Best Buy’s, their stores are small and unorganized, and frankly, the service and attitude wasn’t really there by the sales staff. So Circuit City will gain in the short term, but what do you think will happen past mid-2008? Just get worse because if the service was what it was today, imagine what it will be like with lower paid employees…
Circuit City also hired Goldman Sachs for financial advice on what to do with and whether to sell its unit InterTAN, an Ontario consumer electronics retailer that had been acquired in 2004 for around $284 million.
I think Circuit City should also retain Goldman Sachs for more advice as to the sale of the company to a private equity firm that can really turn it around. Don’t worry, I’m sure the CEO, the board, and the executives will fair very well with their exit packages, for doing such a wonderful job in leading the company…
2 thoughts on “Circuit City Cuts Wages to Juice Profits …. Business 101”
I hope you are not surprised by this… The thing I find interesting is that they are "planning" on laying off 3500 people and then hiring them back at a lower pay. I’ve never heard of this tactic.
If I were these people I join a union and really put the screws to Circuit City…
This is the first sign that CC is on the way to going out of business.
No, it doesn’t surprise me that they are doing it, just that they are so open and forthcoming about it. Usually a company qould be as quite about it until the execute on it, or just say they are "rightsizing"
Comments are closed.