March 30, 2007
Circuit City Gives Best Paid the Boot
Roughly 3,400 of the most highly paid workers in Circuit City stores have received a rude surprise as the company announced it was sacking those employees and replacing them with others who it would pay less.
The employees being dismissed have been given the option of reapplying for a job and starting out at the lower wage range being paid to new hires.
The move, according to a statement from Circuit City CEO Philip Schoonover, will “deliver improvements in our selling, general and administrative expense rate while maintaining appropriate investments to drive our key strategic initiatives such as digital home services, multi-channel and home entertainment.”
Others, even those who see Circuit City’s logic, have some doubts about its decision.
“While we view these cost cuts as clearly good for near-term earnings, they are not necessarily the way to drive longer-term operational success,” Bernstein analyst Colin McGranahan told Reuters.
“It stands to reason that firing 3,400 of arguably the most successful sales people in the company could prove terrible for morale,” he added.
Mr. McGranahan said this is not the first time Circuit City has moved from a more highly paid workforce to one with lower-paid workers. Previously, the company moved from commissioned sales people to lower wage hourly workers.
“The prior occurrence had a dramatically negative impact on sales, and a significant risk exists that the same will happen again,” he wrote in a research note.
Circuit City said 8.5 percent of store employees will be “separated” from the company as a result of the move.
Discussion Questions: How do you think this strategy will affect Circuit City employee morale and customer service at its stores? Are there any positives that could come out of this? Could such tactics have other repercussions in the retail industry?
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I would advise Circuit City to take out that “option” for employees to re-apply for positions at lower pay. That’s a recipe for low morale + bitterness; a double whammy! Long after Circuit City corporate has forgotten who did what, employees will remember every penny that was taken out of their pockets.
Word on the street is that Best Buy is also initiating store-level layoffs and they have implemented tougher training and certification standards for their Magnolia employees; a move that will have those employees studying for tests on their own time yet without any promise of retaining their jobs. At least Circuit City can point to store count reductions….
It’s getting tough out there as formerly fat CE retailers feel the sting of mass encroachment. No longer able to rest on their warranty sale laurels, many are choosing scorched earth tactics over reasoned approaches.
Does this mean Jim Nance has been fired? Circuit City has been running their Jim Nance commercials throughout the NCAA Tournament and you have to wonder if they could not have picked a worse time to make these announcements?
The question really is what are these higher paid employees doing and are they earning the higher pay or is it something they have just gotten because they have been at Circuit City for a long time?
If they are in actuality the real producers, then this could be a major mistake. If they are changing the sales model then this could be a good move.
I do not understand why they did not look at some process for changing the compensation package rather then saying “you’re fired and if you want to come back and work for us then reapply for your old job back.” But I guess it is really not their old job.
As an aside, if I was a retailer looking for good people this may be a great place to go shopping in the next couple of weeks. Not for product but for people…including management.
Obviously Circuit City is not interested in improving morale but rather just saving their company. Eventually Circuit City will just disappear. Why didn’t they just cut the employees rate of pay and just forget about the layoffs? Some employees would have just quit anyway. I wonder what kind of message this sends to prospective employees? Looks to me like someone in top management woke up on the wrong side of the bed. Most likely they will come up with a different plan.
Firing these employees will not have a negative impact on the level of customer service as presently, the customer service level, from personal experience, is very low. My company, ICC Decision Services, has been working with many of the largest retailers in the US. We measure, utilizing a variety of tools including mystery shopping, customer satisfaction, customer experience and corporate standards. We have conducted benchmark studies measuring the level of customer service nationwide. Circuit City, whenever I go into their stores, does not do many of the things that retailers and consumers consider good customer service. For example, the last few times that I went into a Circuit City store I was not greeted, I had difficulty finding a store associate to assist me, they didn’t engage me or ask about my needs, didn’t take me to the product I was asking about, didn’t explain any benefits or features about the product and didn’t thank me for shopping. Perhaps the employees deserve to be dismissed or Circuit City is doing a poor job of training employees and managing them. Based upon my experiences, I would be hard pressed to be a loyal Circuit City customer.
Layoffs never improve morale. Circuit City decided to move their customer approach away from “commission breath” manipulators. Sears had the same problem several years ago. They were known for their staff of highly motivated armtwisters, like car dealers. Sears decided they couldn’t afford the expense and laid off thousands. Circuit City can’t afford the expense, either. Appliance and electronics margins are too low for stores to pay high commissions.
There is one perverse type of positive result that could come from this. Circuit City is obviously viewing their store personnel costs as an expense rather than a brand-building investment, as companies tend to cut expenses but often increase investments.
Store personnel who interact with customers are one of the most powerful touchpoints a retailer has. Retailers who seem to hire personnel with the thought that they are a form of brand expression seem to be winning out. Consider Starbucks, Best Buy, and the Apple Stores, for example.
It is quite possible that Circuit City’s action will provide dramatic evidence via negative example that the brand expressive/theatrical value of customer-facing store personnel is a place to invest and leads to success.
It certainly doesn’t seem as if Circuit City wants its people to get better at their jobs.
What’s more, I can’t imagine a worse time for Circuit City to shoot itself in the foot like this, given Best Buy’s recent negative publicity about store-level management going beyond poor service to actively cheating the customer with bait-and-switch pricing.
As a casual observer, it’s easy to see that in the age of Trader Joe’s and the Apple Store, people are a key element in delivering on any brand promise.
But again, my client Maritz (another plug) has terabytes upon terabytes of data showing that front-line people are THE key element in delivering on any brand promise. And how a company treats its people is the key metric in predicting how those people are going to treat their customers: engaged employees, empowered to satisfy customers, will do what it takes to satisfy that customer and even go beyond, into the area of customer delight.
(Given the troubles at Best Buy, I would think Circuit City would run for that positioning in a sprint. But I guess not.)
We also know, and this holds true across industries, that customer satisfaction scores correlate with sales and margins.
Our performance-improvement plans have a lot of elements: Research. Training. Communications. Incentives. Coaching. Rewards and recognition.
Depending on specific client needs, I’ve seen our plans combine the elements in lots of ways.
But I have never once seen a plan that called for publicly punishing marginal performers, let alone top performers. (I have seen plans that turn marginal performers into top performers.)
So if I look strictly at the data so painstakingly and expensively acquired all these years, I can conclude that Circuit City is making a perhaps fatal mistake over the long term.
But to announce the plan so publicly–brazenly, even–seems to me to be sending customers two messages:
1. We have no interest in your experience in our stores.
2. Since our prime customer demographic overlaps in many ways with our prime employee demographic, we’re ready to write all of you off as so much human offal.
If consumers react to the news of these layoffs as I think they might, Circuit City may see an immediate drop in sales that offsets whatever savings the company hoped to achieve by throwing its best salespeople to the wolves.
I worked on the Circuit City brand when they took away commissions. There were indeed cost savings, but certainly not in the more intangible areas to measure. Many of the most productive employees left, some whom had been with them well over 10 years! With them left the passion and product expertise that many customers saw as their clear differentiator. Before it went down, CE industry research consistently found them to be the best perceived for customer service. After, the playing field was clearly leveled.
What we don’t know here is if they have a plan in place to create better service from the everyday employee. I’m aware of some very innovative initiatives happening very quietly that may surprise us all. For their sake, let’s just say “I hope so!”
Coming in the wake of the store closures announced a couple of weeks ago, these layoffs seem to accelerate the negative momentum at Circuit City. The company may cost-cut enough to live to fight another day, but there doesn’t appear to be much consumer strategy beyond these desperation measures.
What does Circuit City hope to become? If it wants these hard-to-swallow actions to be regarded favorably, it must clearly communicate some vision for its future, some positioning, some plan to get there. So far, the information seems vague: In its release today (Mar. 28) the emphasis is on controlling SG&A expenses and “key strategic initiatives such as digital home services, multi-channel and home entertainment.”
Store closures and layoffs aren’t going to win Circuit City many friends among their customer base, even if they are popular with shareholders. A clearly articulated customer value proposition could set this company back on track, but I’m not holding my breath.
From a service and employee morale standpoint, this is another Circuit City blunder that will undoubtedly have negative repercussions for their already deplorable customer service levels. Consider the thoughts of the remaining employees: disgruntled about their pay, worried about job security, confused about the company’s loyalty….
What does laying off 3,400 of your highest paid workers say to the remaining employees? For example: Employee #1 and #2 have the same job title, responsibilities, etc. When employee #1 finds out that employee #2 has been laid off, the logical conclusion for employee #1 is that he/she was underpaid. This leads employee #1 to acerbity, lack of motivation and morale, lack of company loyalty, bad customer service, all detrimental affects to the business.
Circuit City is viewing their employees as an expense and the remaining workforce will take notice. This will be the most detrimental result. What does this say to existing employees who want to set career advancement goals within the company?
There’s too many questions with negative conclusions. Say good-bye to a positive company culture. This short term fix clearly sends the wrong message.
Circuit City Picks up the Axe and The Spade. The Axe to fire their best employees, the spade to dig their own grave. If the company needs to retrench, by all means close underperforming stores; re-strategize to dominate web-based sales. But don’t let go of the heart of the company. A company is not hardware–it’s liveware.
Salespeople generate revenue. Generally, more experienced salespeople generate more revenue. Firing highly paid salespeople may help balance the books but it will make sales worse.
If the highly paid salespeople are generating more revenue than inexperienced salespeople, then there is a problem with the training, promotion, and salary structure. If that is not the problem, then Circuit City is losing its most valuable resource in generating revenue. If the new lower-paid salespeople generate fewer sales or less revenue, how can Circuit City expect to succeed in the long run with only using inexperienced salespeople?
In addition, the newly hired, lower-paid salespeople now know there is no future at Circuit City. They should take advantage of whatever good training there is and then leave to work for a company that values their knowledge and experience.
This is a bad long term strategy for Circuit City.
I know very little of the background that brought Circuit City to this point besides what I have heard on the radio. One comment was that they got to this point by first stopping their commission based salary structure and giving everyone who was on commission a salary based on averaging their prior income. So, the ones who were producing the most results got the highest salaries. Now I guess the question comes down to whether they continued their stellar ways even after the incentive was gone.
I am the first one to praise the demise of the commission sales incentives. I live in the northeast and remember the days of the “Crazy Eddy” stores and the need to negotiate prices with the salesman. I would much rather shop price online and get my deals that way.
Having said that, I think any blanket management action that treats all employees the same is wrong. We have to recognize that people are individuals, some enjoy helping customers vs. pushing sales, some are “closers” and want to maximize their sales, and the majority are probably pretty average folks just wanting to take home a decent wage that covers their personal needs. The challenge is for the retailer to develop an incentive program that rewards everyone for the role they provide. Or in this case, to phase themselves out of a previously misguided program without loosing the expertise they have in the store.
So what should Circuit City have done? First of all, they should have put the commission program back but not make it as big a portion of the salaries as it was previously. This lets the “closers” recoup the cuts by doing what they do best. Second, they should put in place a “customer service award” that is voted on by the customers and the store employees to identify the sales people who have focused on providing superior service. The thing they should never have done is exactly what they did do: take blanket action against 3400 employees that gets them negative headlines all over the market place.
With only a few exceptions the consumer will barely notice a difference in the quality of service so for the short term it’s probably an appropriate quick fix to help buy more time for longer term survival. However, the layoffs are usually just symptomatic of much broader and deeper issues and problems. I still prefer the knowledgeable but partially commissioned salesperson in these types of channels that are motivated to learn about the products and services and have a reasonable desire to sell me. I think this approach works the best so as long as the retailer and suppliers are willing to invest in training and development to enhance the employee’s product knowledge.
What on Earth? Why don’t they just outsource staff and get it over with? CompUSA is tanking, Home Depot customer service is plummeting, now Circuit City slashes the top paid employees? Also with the the condition that they can reapply for the same job @ a lower wage? There’s probably a reason why these folks have a higher wage than the new staff. Yes, customer service will tank as well. How about they just replace the staff with kiosks?
Sorry to gripe, but this is getting ridiculous.
It has been known for some time that Circuit City has been in financial trouble. Customers and employees understand that certain measures need to be taken to insure profitability. Too often it comes at the expense of a company’s most valuable employees, the ones with experience and job knowledge. If the officers on Circuit City had announced the same percentage reduction in their income first, I think it would have a less of an impact then what they are going to experience. Now they will have to contend with employee and customer backlash in addition to training issues and cost.
1. Publicly traded companies frequently fire large numbers of employees as a strategy to prove to stock holders they are “well managed” and or to improve their net after expenses. This is a well documented fact. Secondly, almost always these companies stock price or value goes up after the “purge.”
2. It’s also a not so clever way to hide salary increases/bonuses for the higher level employees. It focuses all media attention on the reduction of the work force. This should be looked at very closely.
3. If there is such a thing as “Karma,” we reap what we sow. Besides, why would anyone with other options want to work with an employer that can’t be trusted?
The bottom line is: such corporate behavior encourages employees to take steps to protect themselves. And causes them to be more focused on survival and/or looking for new employers rather then the immediate work at hand.
Most good retailers adopt the exact opposite tactic–they terminate their underperformers and find ways to pay their best performers even more. And, we all know the 80/20 rule applies to salespeople as well–so let’s fire the 20% that are generating 80% of the sales. And how about the impact on career paths–let’s send the message: perform well and get fired!
This is overall a very bad decision by upper management. If I were the CEO of Circuit City, I would offer to cut my pay by 50% and shift my compensation into some sales/revenue increase incentives. Put my head on the chopping block first rather than messing around with the employees’ livelihood.
Sales associates are the ones who bring in the revenues, not some back office pencil pushers. One can strategize only so much so it all looks good on paper, but without the physical contact of knowledgeable sales personnel, the company is not going anywhere. One can argue that online sales do not need the personal touch. However, there is no substitute for a personable and product-knowledgeable sales associate.
Time will tell if Circuit City is going to be around long term. Personally, I think it is a tragic mistake that upper management made.
As many have said…it’s too bad that the Circuit City execs can’t see the trees from the forest.
In a very competitive market, service is the key. The products are all the same from one electronics store to the next…the differentiator is the people. People–knowledgeable people–are what drives customer satisfaction and sales.
There is nothing worse than walking into a store of any kind with my hard-earned money ready to plunk down–sometimes thousands of dollars–only to be waited on by the lowest paid employee who has no knowledge of the product he is selling you.
Circus City (sic) might be saving a few dollars on the front end, but will lose thousands in sales on the back-end…seems to be a pretty simple equation to me.
If you need to re-structure, do so; close under-performing stores, limit your new hires, even change your commission structure if it doesn’t balance, but don’t lose the work force that got you there in the first place.
Morale will go down the toilet, people will not look to Circuit City with long term aspirations because there will be nothing to aspire to, except your own replacement.
Circuit City needs to do some major damage control and quickly, if it’s not already too late, or they might find themselves circling the bowl with the employees they just let go.
Circuit City continues to try to stave off the inevitable. The brand is dead, they’ve ceded low prices to Wal-Mart and information to the Net. Why would anyone go into their clumsy, poorly laid out stores to meet more slackers than they have now?
Their PR company actually used this demeaning action toward employees to get their name out there. Pathetic.
The move, according to a statement from Circuit City CEO Philip Schoonover, will “(1)deliver improvements in our selling, general and administrative expense rate while (2)maintaining appropriate investments to drive our (3)key strategic initiatives such as digital home services, multi-channel and home entertainment.” [numbering added]
3 cliches in one sentence! If Mr. Schoonover can deliver EPS results as impressively, he should get a bonus…or maybe we should fire him, and have him re-apply for his job at a lower rate….
There’s not much I can add to the multitude of negative comments (on what I first thought was the annual April Fool’s story), but is it any wonder that “for cause” job protection laws make headway?
Former CC CEO W Alan McCollough paid Boston Consulting Group $5 million to take almost a year to develop a new strategy for Circuit City. Meanwhile, he collected his obscenely excessive salary, and promptly retired when the report was concluded. As we can now see, it was a total waste. According to Yahoo Finance, he’s still milking the company for over $2 million per year as a consultant. Where’s the Board of Directors? Are they sanctioning this ripoff?
TWICE reported that Schoonover took home $6 million last year. That compares to what Apple pays Ron Johnson who really delivers the goods for Apple. I predict anyone who takes a short position in CC stock will be greatly rewarded.
Eventually, some CE retailer will realize how high the service needs (including pre-sale needs) are for their customers, and they will package services that they will sell separately before they sell a product. They will organize and incent front line employees to maximize service quality and service revenue while product sales will be merely an aside, being presented at very low prices since the service revenue stream will be so substantial. Apple’s model is evolving in this direction and there are ways to apply it to price competitive merchandise as well.
Do your job well, bring profit into the company, get merit pay raises for accomplishing this, get let go. Somehow, I must have skipped this particular business philosophy course in college, but I am nearly positive that I read the required textbook for this class as an 11 year old child – The Superman Bizarro World Comic Book – where everything that is logical in the universe is backwards. I would have loved to have been a fly in the board room at Circuit City headquarters when they came up with this doozy of an idea. Talk about spin!
As a consumer, when I want to buy new electronic products, which can represent a sizable investment, I want to talk with knowledgeable sales personnel. It doesn’t look like those types of associates will be at Circuit City anymore.
And why would someone want to re-apply for their job at a much lower rate of pay? Again, what were they thinking?
This is a perfect example of why I no longer shop Big Box stores unless I absolutely have no other choice. Electronics is one of the fastest changing retail marketplaces. The range of features in TVs, computers, cameras, printers and phones is mindboggling. I would rather spend the extra cash to shop at the Apple Store (and we are talking EXTRA cash) and walk out knowing that a qualified salesperson/expert helped me purchase the right product for me, than save at a store like Circuit City. I know most Americans would rather save the cash. But which is more profitable, 100 sales at razor thin margins or ten sales at healthy margins?
This is the second time in 4 years that Circuit City has made these cuts. In 2003 Circuit City eliminated the commission system and fired many of their high producers. For those who are not concerned about the social and personal disruption this caused, they should understand that this is a move of either greed or desperation. Either way, this second round of cuts is a sign that low moral, lack of product knowledge and declining sales will soon follow.
My advice for consumers is go to COSTCO. COSTCO is a company that defies Wall Street and continues to pay high wages, provides health care, continues to prosper and provides low prices.
Everyone seems to have the same general thought. Short term may give Circuit City a bump in their stock value but this isn’t the same juggernaut of several years ago. There was a time when I entered a Circuit City, I knew I’d receive knowledgeable help and end up with what I came in for. Those days have long since passed.
If I had to choose a differentiation, quality and service was it for Circuit City–was being the key word. To offer real customer service like Geek Squad with Best Buy, it has to be an entirely separate service. By the way, Best Buy does a good job of selling people on this service because in actuality, Geek Squad is not free.
I’ve never been impressed with their marketing, not that advertising and marketing are the answer. Your point of sale is still very important but obviously not to the corporate hierarchy at Circuit City. With no incentive for employees except “if you do your job you’ll be laid off,” stock value concerns or not, Circuit City’s predicament will only get worse.
They are definitely digging their own grave.
Nasty business. But now what will we do, shop at CompUSA? Some retail concerns, like many other service-information oriented specialties, are better served by automation. Others still require experienced sales people. (Do-it-yourself construction as Home Depot has shown….) The question would be this. What could CC profitability sell that really needs the skills of those employees?
Reading the comments further down I had a couple of more thoughts on this.
If I were CEO here 🙂 I would have taken those ‘high paid’ employees who are most likely geeks themselves and trained them to up-sell on televisions… push the works here, HD is just going to grow and with it, surround sound, various flavor DVD/DVR (and still VCR at this point) plus tables or cabinets for the stuff. I’d have them use the floor model computers & printers to map out connections to what the consumer is buying and print it out for him. This would combat the BB ‘geek squad’ and the consumer is leaving the building with directions on hooking up his particular purchases (integrate cable/dish if he has it). This would also help sell $$$ cables, all in one swoop. Consumer leaves with 100% of what he needs in equipment and knowledge and can start to assemble the stuff as soon as he gets it.
You need good camera people too – models change every few months and there’s room to up-sell there and a lot of room for growth. At this point, most people are computer savvy and don’t need much help in that department. Same with the iPod stuff.
Save the money by having the $7.50 an hour people in charge of DVDs, phones, extra PC stuff like routers, modems, external hard drives, etc. Most tech savvy high school kids know the basics on that.
I have shopped in Circuit City and already find their sales people very poor. I have walked out of the store without purchasing the electronics I went in for, for this reason. Firing their “best” sales people and replacing them with lower paid people, who probably won’t care about the customer because they are there just to make a couple of dollars (mostly kids) will have more people walking out of the store, promising never to go back, like I did.
Employees need more opportunities to make significant dollars and will work much harder if they are well compensated for their effort. This is human nature.
I believe this strategy could be a death sentence for Circuit City. The key in today’s world is to find ways to train and incent employees for optimal customer service, otherwise they will lose all their customers to stores who understand the importance of customer service!
3,400 of the most highly paid workers in Circuit City are being eliminated. Any way you communicate this decision, it’s not a win/win, it’s a win/lose. At first blush, it seems the senior team has clearly been misguided by its lack of truly leading in turbulent times. I don’t view this as a competitive strategy. Second, as we all know, the cost of replacing top human capital will be more than just dollars. The intellectual loss, culture they built, morale they created and the knowledge drain that will occur will be enormous. If you have brand loyal, savvy customers that understand talent management, they will vote with their wallets. Circuit City has just created a new case study for Harvard Business School, as this will be a turning point in the wrong direction for Circuit City. The senior team could have taken a play out of John Mackey’s book (Whole Foods-CEO) as an attempt to grow a new compensation model. When you pay over $2 million for one consultant, you have to ask, does the Board/Senior team have the right people on the bus, in the right seats to begin with?
Companies that do not value, respect and reward their people typically do not value, respect and reward their customers either. Top management focused on stock price and their personal stock options are the ones who should be removed and replaced by the hourly people who actually understand and care about the store.
Again, corporate profit ahead of all else. When will corporate legacies realize that the employees are part, not only of the structure, but of the whole of society, and as such, have a requirement to enjoy sufficient income to be a participant in that society?
At one time in my career, people in the organisation were paid quite handsomely and became an integral part of the local and national economy. After I left the company, salaries were halved and morale tanked, work became a bore and quality suffered such that the company died.
I did not hold that the company should be so loyal to the few at the top and that all others were merely slaves to ensure top salaries and benefits to the executives. In retrospect, the investors learned that they did quite well and for them the return was steady and reliable.
In today’s corporate structure, greed is the driver. Home Despot (sic) Short-Circuit City (sic) and many of the food chains have, in an effort to boost shareholders advantages, committed a slow but inevitable suicide by continuing a practise of [sabotaging] the very core of their success.
The names may survive, if only as that, but the life of these companies is ending. And truly, it’s an ugly death. The executives that end up skimming the cream will, in the end, suffer, as well they should. There just won’t be the big news flash and the commentaries such as we create here, to hash over.
Sounds like the same sort of “strategy” that got Home Depot in so much trouble over the long haul…running a business that depends at least partially on customer service and product knowledge with a “lowest common denominator” approach to hiring. At least Home Depot had enough time and critical mass to begin correcting its mistake. Circuit City is not “best in class” to begin with and this sort of move might hasten their demise, even though the move is probably reactive to margin and other bottom-line pressures.
Just as Home Depot used to pride itself on its sales associates’ knowledge of products and friendly consumer experience, with tips and methods to consider for the completion of consumers’ projects, Circuit City will find that part time help will not be trained properly on products, nor take the care to serve the consumer, P> Some corporations just don’t get it. And cost cutting is first, while consumers suffer.
Might we ask, who really is to blame for the Circuit City mess? Hmmmmmmmmmmmmm
Obviously from a PR perspective, this could hardly be worse, and just sounds like some type of classic Neanderthal management strategy, as it is being portrayed everywhere, and in a number of the comments above.
However, the real questions, it seems to me, are:
(1) Is Circuit City management brain dead and totally lacking data on the impact of this, or, from a pure business decision (forgetting the PR) is this really the right move? Few commentators seem to be considering that this is may be what the numbers say. If training and employee quality, etc. really paid off, you have to assume the great majority of retail CEOs are just [crazy] for not going down that path.
(2) Is it possible for retailers in many market segments to pay much more than minimum wage and still make a decent profit? Or is the price competition both from traditional stores and the web now such that you just can’t make money paying people $12 an hour? Would be a shame if that’s the case, but it just may be true.
Circuit City is sending a message to their customers that says “There is something wrong with our company, don’t shop here. We are stupid, cannot compete with Best Buy, and don’t know how to make a profit.” Why would anyone want to shop at Circuit City knowing that they are in desperate financial trouble and have publicly announced their difficulties? By firing your highest paid employees, Circuit City is probably firing its best and most experienced employees. With the massive shortage in retail labor, they should have no trouble finding a comparable job someplace else. Only those who are unemployable will reapply for their jobs. Then Circuit City will be stuck with an unemployable workforce, which will spell the end to their existence. Publicly disclosing distressing financial information scares away customers. Circuit City should have put a different spin on the story just saying they are hiring new workers without ever mentioning they are also firing workers.
The layoffs in the consumer electronics channels of trade reflect much greater issues and challenges within. In terms of how in the short term the layoffs will impact morale I don’t think the consumer will notice a significant difference because morale and the quality of service was not particularly inspiring to start with. The consumer products sold in this channel and how they are marketed and sold to consumers have evolved and changed over the past several years and its obvious that the retail channel itself needs tweaking and change in its approach to the consumer. The suppliers can help by doing their best job to help retail stores with the training of in-store personnel to enhance product knowledge. When a retail-store employee is armed with greater knowledge and some reasonable incentive then the morale will improve. By all means the retail employee should also have opportunities to earn a basic salary plus some commission, as well. Consumers want knowledge and consumers want to be sold.
Interesting that at the time Best Buy is emphasizing its employees’ knowledge with its Geek Squad, Circuit City fires probably its most knowledgeable group of employees–the highest paid–who probably worked there the longest to become highly paid. Seems to me its time to buy Best Buy stock.
Classic short term versus long term thinking. I give Circuit City 1 year max and they’ll be a bad memory….
There will always be a need for personal customer service in the electronics category. Best Buy’s approach to targeted consumer segmentation with the Magnolia Home Theater “Store Within a Store” for affluent neighborhoods shows that the company “gets it” in terms of profitability through up-selling and in-store education. I worked at Circuit City as a Sales Counselor for many years during my college days, and it is going to be sad to see the continual downward spiral of the company as they lose the only shot they had at competing head-to-head with the other category killers on a store-by-store basis: people, knowledge, and service.
Let’s face it, laying off or outsourcing is the easiest and fastest way to increase profit dollars–in the short term. It’s what makes Wall Street happy. It’s why companies do it.
In the long term, it’s bad for companies to do this as it creates, after a short while, a knowledge vacuum at the point that is most important–interaction with the paying customers. To cover a shrinking customer base, prices go up. Everyone loses eventually.
Technology changes all the time and unless you are a techie aficionado or have hours to devote to the study of new products, there is no way to keep up with it. You need good, knowledgeable, familiar and friendly staff to build that trust bond with customers who are considering spending big $$$ on computers, HD TVs, Sound systems, high tech cameras, etc. Especially these days when most of that equipment requires an engineering degree to assimilate it all and the time required to understand the sometimes subtle differences between brands and equipment ability.
This is a sure fire way to hasten the continued fall of sales. They are not going to fool anyone by cutting the expense for the people who should drive their business. The issue should be to better train their sales people in closing a sale. They are terrific at explaining the products but seem to have very little idea as to how to close a sale. By hiring lower level people they are going to get poorer performance, more turnover, more dissatisfied customers and lower sales. Morale is going to suffer at every level. If they think they are paying too much, set up a commission or bonus scale that will attract people who want to sell, that are just not techie lovers. The end is near and it does not have to be. Interestingly, I think their online sales people are knowledgeable and do know how to close a sale. Perhaps the first person to be let go should be the one who made this decision.
In the front-page article USA TODAY ran on March 29, 2007, Circuit City spokesman Jim Babb said “We’ve got to get our stores to adhere to wage ranges.” My question is this: Who is running Circuit City, company management or the store managers?
If I had to go to a job that I have had for years making a certain amount of money each week to find out that I had lost my job but could be rehired at a lower pay rate, I definitely would not work as hard as I used to. I would do less then I normally would do because I was making less money. You get what you pay for; say I’m working my butt off for $15.00 an hour and now I have to work for $8.00 an hour, you sure would not see busting my hump at that job. Low wages are for inexperienced employees, not for trained and highly productive employees. I won’t be buying anything from Circuit City anymore.
Circuit City is forgetting how consumers buy their electronic gadgets today. There are so many options with technology changing rapidly that consumers want to discuss those options with an expert. Laying off tenured, well compensated employees says to me that my experience will be with a minimum wage, DUH! Therefore, consumers will go other places to purchase their products. This is a death sentence; not only does CC have to worry about the negative impact of consumers, but what intelligent person would send in a resume to Circuit City? Once the new employee has worked hard and earned a raise they have a risk of being terminated because they make too much!?!? This evidently was not well thought out. Good luck CC, you’ll need it.
Cheaper employees doesn’t mean better employees. If the employees are lower quality, personally, I wouldn’t ask them a question. They are not going to try as hard to learn the information for these large purchases. If I were to hire an employee for a retail position, I would hire them for their worth. If an employee is not paid their worth they will leave. The increase in the turn over rate will increase, which will essentially decrease productivity. With the decrease of productivity, the price to cover overhead costs will increase, discouraging customers to come to their store over a period of time. Why would you give the competition what they want?
What a shame.
Employees suffer because the company made a terrible merchandising decision to excessively price cut over the holiday season. The CE industry CHOSE to get into a price war on plasma TVs. Science-based retailing went out the window. Hysteria has reigned for 5 months. The consequences are suffered by those who can least afford it.
Circuit City, which was becoming an industry leader in customer service now falls back into the pack.
Really, it’s a shame.
Sears has figured out that just having hourly waged employees in their tool department meant no customer service. They changed a month ago to hourly plus commission. Amazingly, overnight they took their hands off their text messaging and started talking to the customers. Their appliance folks are still 100% commission so they are always wanting to fight over customers. Circuit City needs experienced sales people to get sales. Commissioned based is the best way to get a work force moving.
Let’s see….Highland Appliance, Fretter Appliance, Crazy Eddie’s, Silo….Do I see a pattern here?…low margins, especially in consumer electronics can be definitely offset by customer service & a knowledgeable sales staff. CC doesn’t get it by their move. Too bad.
Best Buy is already kicking Circuit City’s butt. With decisions like this, the repercussion will be devastating to CC’s already lower sales. One of Best Buy’s disadvantages is customer service. This was the only way Circuit City could’ve knock out its competitor, but they have now lost it all. I think we will be able to see it in the news as time goes by. Personnel is the best asset a company can have for growth.
Yet another example of c-level and senior management at companies using their superior intellect and decision making expertise to help us commoners at the lower levels of the food chain.
I would bet my entire 401(k)–that’s cash money folks–management will walk away with very large bonuses, etc. for [givin’ the boot to] the most productive workers in the field.
When in the [heck] are you guys at the top going to get it? Oh yeah, sorry…I forgot; NEVER!
I never thought I would say this, but maybe it’s time UNIONS made a comeback.
Recipe for disaster! They should have just closed under performing stores, or closed them all and just be an online retailer. If you are going to get rid of your best people who actually know products and can help inform the end consumer, or better yet, verify what they have already researched online, then you might as well set up shop as an online retailer. Most of their sales people now will just be order takers and will not offer the consumer anything.
CC has to do what it has to do to compete in what is a very competitive marketplace. While gutting your workforce when sales are down is probably not the best way to overcome a drought, if there is a strict plan in place, CC can possibly restore the luster this chain once had.
If I were the VP of Ops, I would think reinvesting 20%-40% of the cost savings back into training and retraining would be ideal with a strong focus on customer service. Also, I would make sure that my vendors are behind us 100% and provide product knowledge workshops and in services for all the new (read: cheaper) associates coming in. Overall, in the short term this move will impact negatively but if there is a strategy (and it’s not just a cost cutting move), CC can overcome its current woes in the medium and long terms.
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I would advise Circuit City to take out that “option” for employees to re-apply for positions at lower pay. That’s a recipe for low morale + bitterness; a double whammy! Long after Circuit City corporate has forgotten who did what, employees will remember every penny that was taken out of their pockets.
Word on the street is that Best Buy is also initiating store-level layoffs and they have implemented tougher training and certification standards for their Magnolia employees; a move that will have those employees studying for tests on their own time yet without any promise of retaining their jobs. At least Circuit City can point to store count reductions….
It’s getting tough out there as formerly fat CE retailers feel the sting of mass encroachment. No longer able to rest on their warranty sale laurels, many are choosing scorched earth tactics over reasoned approaches.
Does this mean Jim Nance has been fired? Circuit City has been running their Jim Nance commercials throughout the NCAA Tournament and you have to wonder if they could not have picked a worse time to make these announcements?
The question really is what are these higher paid employees doing and are they earning the higher pay or is it something they have just gotten because they have been at Circuit City for a long time?
If they are in actuality the real producers, then this could be a major mistake. If they are changing the sales model then this could be a good move.
I do not understand why they did not look at some process for changing the compensation package rather then saying “you’re fired and if you want to come back and work for us then reapply for your old job back.” But I guess it is really not their old job.
As an aside, if I was a retailer looking for good people this may be a great place to go shopping in the next couple of weeks. Not for product but for people…including management.
Obviously Circuit City is not interested in improving morale but rather just saving their company. Eventually Circuit City will just disappear. Why didn’t they just cut the employees rate of pay and just forget about the layoffs? Some employees would have just quit anyway. I wonder what kind of message this sends to prospective employees? Looks to me like someone in top management woke up on the wrong side of the bed. Most likely they will come up with a different plan.
Firing these employees will not have a negative impact on the level of customer service as presently, the customer service level, from personal experience, is very low. My company, ICC Decision Services, has been working with many of the largest retailers in the US. We measure, utilizing a variety of tools including mystery shopping, customer satisfaction, customer experience and corporate standards. We have conducted benchmark studies measuring the level of customer service nationwide. Circuit City, whenever I go into their stores, does not do many of the things that retailers and consumers consider good customer service. For example, the last few times that I went into a Circuit City store I was not greeted, I had difficulty finding a store associate to assist me, they didn’t engage me or ask about my needs, didn’t take me to the product I was asking about, didn’t explain any benefits or features about the product and didn’t thank me for shopping. Perhaps the employees deserve to be dismissed or Circuit City is doing a poor job of training employees and managing them. Based upon my experiences, I would be hard pressed to be a loyal Circuit City customer.
Layoffs never improve morale. Circuit City decided to move their customer approach away from “commission breath” manipulators. Sears had the same problem several years ago. They were known for their staff of highly motivated armtwisters, like car dealers. Sears decided they couldn’t afford the expense and laid off thousands. Circuit City can’t afford the expense, either. Appliance and electronics margins are too low for stores to pay high commissions.
There is one perverse type of positive result that could come from this. Circuit City is obviously viewing their store personnel costs as an expense rather than a brand-building investment, as companies tend to cut expenses but often increase investments.
Store personnel who interact with customers are one of the most powerful touchpoints a retailer has. Retailers who seem to hire personnel with the thought that they are a form of brand expression seem to be winning out. Consider Starbucks, Best Buy, and the Apple Stores, for example.
It is quite possible that Circuit City’s action will provide dramatic evidence via negative example that the brand expressive/theatrical value of customer-facing store personnel is a place to invest and leads to success.
It certainly doesn’t seem as if Circuit City wants its people to get better at their jobs.
What’s more, I can’t imagine a worse time for Circuit City to shoot itself in the foot like this, given Best Buy’s recent negative publicity about store-level management going beyond poor service to actively cheating the customer with bait-and-switch pricing.
As a casual observer, it’s easy to see that in the age of Trader Joe’s and the Apple Store, people are a key element in delivering on any brand promise.
But again, my client Maritz (another plug) has terabytes upon terabytes of data showing that front-line people are THE key element in delivering on any brand promise. And how a company treats its people is the key metric in predicting how those people are going to treat their customers: engaged employees, empowered to satisfy customers, will do what it takes to satisfy that customer and even go beyond, into the area of customer delight.
(Given the troubles at Best Buy, I would think Circuit City would run for that positioning in a sprint. But I guess not.)
We also know, and this holds true across industries, that customer satisfaction scores correlate with sales and margins.
Our performance-improvement plans have a lot of elements: Research. Training. Communications. Incentives. Coaching. Rewards and recognition.
Depending on specific client needs, I’ve seen our plans combine the elements in lots of ways.
But I have never once seen a plan that called for publicly punishing marginal performers, let alone top performers. (I have seen plans that turn marginal performers into top performers.)
So if I look strictly at the data so painstakingly and expensively acquired all these years, I can conclude that Circuit City is making a perhaps fatal mistake over the long term.
But to announce the plan so publicly–brazenly, even–seems to me to be sending customers two messages:
1. We have no interest in your experience in our stores.
2. Since our prime customer demographic overlaps in many ways with our prime employee demographic, we’re ready to write all of you off as so much human offal.
If consumers react to the news of these layoffs as I think they might, Circuit City may see an immediate drop in sales that offsets whatever savings the company hoped to achieve by throwing its best salespeople to the wolves.
I worked on the Circuit City brand when they took away commissions. There were indeed cost savings, but certainly not in the more intangible areas to measure. Many of the most productive employees left, some whom had been with them well over 10 years! With them left the passion and product expertise that many customers saw as their clear differentiator. Before it went down, CE industry research consistently found them to be the best perceived for customer service. After, the playing field was clearly leveled.
What we don’t know here is if they have a plan in place to create better service from the everyday employee. I’m aware of some very innovative initiatives happening very quietly that may surprise us all. For their sake, let’s just say “I hope so!”
Coming in the wake of the store closures announced a couple of weeks ago, these layoffs seem to accelerate the negative momentum at Circuit City. The company may cost-cut enough to live to fight another day, but there doesn’t appear to be much consumer strategy beyond these desperation measures.
What does Circuit City hope to become? If it wants these hard-to-swallow actions to be regarded favorably, it must clearly communicate some vision for its future, some positioning, some plan to get there. So far, the information seems vague: In its release today (Mar. 28) the emphasis is on controlling SG&A expenses and “key strategic initiatives such as digital home services, multi-channel and home entertainment.”
Store closures and layoffs aren’t going to win Circuit City many friends among their customer base, even if they are popular with shareholders. A clearly articulated customer value proposition could set this company back on track, but I’m not holding my breath.
From a service and employee morale standpoint, this is another Circuit City blunder that will undoubtedly have negative repercussions for their already deplorable customer service levels. Consider the thoughts of the remaining employees: disgruntled about their pay, worried about job security, confused about the company’s loyalty….
What does laying off 3,400 of your highest paid workers say to the remaining employees? For example: Employee #1 and #2 have the same job title, responsibilities, etc. When employee #1 finds out that employee #2 has been laid off, the logical conclusion for employee #1 is that he/she was underpaid. This leads employee #1 to acerbity, lack of motivation and morale, lack of company loyalty, bad customer service, all detrimental affects to the business.
Circuit City is viewing their employees as an expense and the remaining workforce will take notice. This will be the most detrimental result. What does this say to existing employees who want to set career advancement goals within the company?
There’s too many questions with negative conclusions. Say good-bye to a positive company culture. This short term fix clearly sends the wrong message.
Circuit City Picks up the Axe and The Spade. The Axe to fire their best employees, the spade to dig their own grave. If the company needs to retrench, by all means close underperforming stores; re-strategize to dominate web-based sales. But don’t let go of the heart of the company. A company is not hardware–it’s liveware.
Salespeople generate revenue. Generally, more experienced salespeople generate more revenue. Firing highly paid salespeople may help balance the books but it will make sales worse.
If the highly paid salespeople are generating more revenue than inexperienced salespeople, then there is a problem with the training, promotion, and salary structure. If that is not the problem, then Circuit City is losing its most valuable resource in generating revenue. If the new lower-paid salespeople generate fewer sales or less revenue, how can Circuit City expect to succeed in the long run with only using inexperienced salespeople?
In addition, the newly hired, lower-paid salespeople now know there is no future at Circuit City. They should take advantage of whatever good training there is and then leave to work for a company that values their knowledge and experience.
This is a bad long term strategy for Circuit City.
I know very little of the background that brought Circuit City to this point besides what I have heard on the radio. One comment was that they got to this point by first stopping their commission based salary structure and giving everyone who was on commission a salary based on averaging their prior income. So, the ones who were producing the most results got the highest salaries. Now I guess the question comes down to whether they continued their stellar ways even after the incentive was gone.
I am the first one to praise the demise of the commission sales incentives. I live in the northeast and remember the days of the “Crazy Eddy” stores and the need to negotiate prices with the salesman. I would much rather shop price online and get my deals that way.
Having said that, I think any blanket management action that treats all employees the same is wrong. We have to recognize that people are individuals, some enjoy helping customers vs. pushing sales, some are “closers” and want to maximize their sales, and the majority are probably pretty average folks just wanting to take home a decent wage that covers their personal needs. The challenge is for the retailer to develop an incentive program that rewards everyone for the role they provide. Or in this case, to phase themselves out of a previously misguided program without loosing the expertise they have in the store.
So what should Circuit City have done? First of all, they should have put the commission program back but not make it as big a portion of the salaries as it was previously. This lets the “closers” recoup the cuts by doing what they do best. Second, they should put in place a “customer service award” that is voted on by the customers and the store employees to identify the sales people who have focused on providing superior service. The thing they should never have done is exactly what they did do: take blanket action against 3400 employees that gets them negative headlines all over the market place.
With only a few exceptions the consumer will barely notice a difference in the quality of service so for the short term it’s probably an appropriate quick fix to help buy more time for longer term survival. However, the layoffs are usually just symptomatic of much broader and deeper issues and problems. I still prefer the knowledgeable but partially commissioned salesperson in these types of channels that are motivated to learn about the products and services and have a reasonable desire to sell me. I think this approach works the best so as long as the retailer and suppliers are willing to invest in training and development to enhance the employee’s product knowledge.
What on Earth? Why don’t they just outsource staff and get it over with? CompUSA is tanking, Home Depot customer service is plummeting, now Circuit City slashes the top paid employees? Also with the the condition that they can reapply for the same job @ a lower wage? There’s probably a reason why these folks have a higher wage than the new staff. Yes, customer service will tank as well. How about they just replace the staff with kiosks?
Sorry to gripe, but this is getting ridiculous.
It has been known for some time that Circuit City has been in financial trouble. Customers and employees understand that certain measures need to be taken to insure profitability. Too often it comes at the expense of a company’s most valuable employees, the ones with experience and job knowledge. If the officers on Circuit City had announced the same percentage reduction in their income first, I think it would have a less of an impact then what they are going to experience. Now they will have to contend with employee and customer backlash in addition to training issues and cost.
1. Publicly traded companies frequently fire large numbers of employees as a strategy to prove to stock holders they are “well managed” and or to improve their net after expenses. This is a well documented fact. Secondly, almost always these companies stock price or value goes up after the “purge.”
2. It’s also a not so clever way to hide salary increases/bonuses for the higher level employees. It focuses all media attention on the reduction of the work force. This should be looked at very closely.
3. If there is such a thing as “Karma,” we reap what we sow. Besides, why would anyone with other options want to work with an employer that can’t be trusted?
The bottom line is: such corporate behavior encourages employees to take steps to protect themselves. And causes them to be more focused on survival and/or looking for new employers rather then the immediate work at hand.
Most good retailers adopt the exact opposite tactic–they terminate their underperformers and find ways to pay their best performers even more. And, we all know the 80/20 rule applies to salespeople as well–so let’s fire the 20% that are generating 80% of the sales. And how about the impact on career paths–let’s send the message: perform well and get fired!
This is overall a very bad decision by upper management. If I were the CEO of Circuit City, I would offer to cut my pay by 50% and shift my compensation into some sales/revenue increase incentives. Put my head on the chopping block first rather than messing around with the employees’ livelihood.
Sales associates are the ones who bring in the revenues, not some back office pencil pushers. One can strategize only so much so it all looks good on paper, but without the physical contact of knowledgeable sales personnel, the company is not going anywhere. One can argue that online sales do not need the personal touch. However, there is no substitute for a personable and product-knowledgeable sales associate.
Time will tell if Circuit City is going to be around long term. Personally, I think it is a tragic mistake that upper management made.
As many have said…it’s too bad that the Circuit City execs can’t see the trees from the forest.
In a very competitive market, service is the key. The products are all the same from one electronics store to the next…the differentiator is the people. People–knowledgeable people–are what drives customer satisfaction and sales.
There is nothing worse than walking into a store of any kind with my hard-earned money ready to plunk down–sometimes thousands of dollars–only to be waited on by the lowest paid employee who has no knowledge of the product he is selling you.
Circus City (sic) might be saving a few dollars on the front end, but will lose thousands in sales on the back-end…seems to be a pretty simple equation to me.
If you need to re-structure, do so; close under-performing stores, limit your new hires, even change your commission structure if it doesn’t balance, but don’t lose the work force that got you there in the first place.
Morale will go down the toilet, people will not look to Circuit City with long term aspirations because there will be nothing to aspire to, except your own replacement.
Circuit City needs to do some major damage control and quickly, if it’s not already too late, or they might find themselves circling the bowl with the employees they just let go.
Circuit City continues to try to stave off the inevitable. The brand is dead, they’ve ceded low prices to Wal-Mart and information to the Net. Why would anyone go into their clumsy, poorly laid out stores to meet more slackers than they have now?
Their PR company actually used this demeaning action toward employees to get their name out there. Pathetic.
The move, according to a statement from Circuit City CEO Philip Schoonover, will “(1)deliver improvements in our selling, general and administrative expense rate while (2)maintaining appropriate investments to drive our (3)key strategic initiatives such as digital home services, multi-channel and home entertainment.” [numbering added]
3 cliches in one sentence! If Mr. Schoonover can deliver EPS results as impressively, he should get a bonus…or maybe we should fire him, and have him re-apply for his job at a lower rate….
There’s not much I can add to the multitude of negative comments (on what I first thought was the annual April Fool’s story), but is it any wonder that “for cause” job protection laws make headway?
Former CC CEO W Alan McCollough paid Boston Consulting Group $5 million to take almost a year to develop a new strategy for Circuit City. Meanwhile, he collected his obscenely excessive salary, and promptly retired when the report was concluded. As we can now see, it was a total waste. According to Yahoo Finance, he’s still milking the company for over $2 million per year as a consultant. Where’s the Board of Directors? Are they sanctioning this ripoff?
TWICE reported that Schoonover took home $6 million last year. That compares to what Apple pays Ron Johnson who really delivers the goods for Apple. I predict anyone who takes a short position in CC stock will be greatly rewarded.
Eventually, some CE retailer will realize how high the service needs (including pre-sale needs) are for their customers, and they will package services that they will sell separately before they sell a product. They will organize and incent front line employees to maximize service quality and service revenue while product sales will be merely an aside, being presented at very low prices since the service revenue stream will be so substantial. Apple’s model is evolving in this direction and there are ways to apply it to price competitive merchandise as well.
Do your job well, bring profit into the company, get merit pay raises for accomplishing this, get let go. Somehow, I must have skipped this particular business philosophy course in college, but I am nearly positive that I read the required textbook for this class as an 11 year old child – The Superman Bizarro World Comic Book – where everything that is logical in the universe is backwards. I would have loved to have been a fly in the board room at Circuit City headquarters when they came up with this doozy of an idea. Talk about spin!
As a consumer, when I want to buy new electronic products, which can represent a sizable investment, I want to talk with knowledgeable sales personnel. It doesn’t look like those types of associates will be at Circuit City anymore.
And why would someone want to re-apply for their job at a much lower rate of pay? Again, what were they thinking?
This is a perfect example of why I no longer shop Big Box stores unless I absolutely have no other choice. Electronics is one of the fastest changing retail marketplaces. The range of features in TVs, computers, cameras, printers and phones is mindboggling. I would rather spend the extra cash to shop at the Apple Store (and we are talking EXTRA cash) and walk out knowing that a qualified salesperson/expert helped me purchase the right product for me, than save at a store like Circuit City. I know most Americans would rather save the cash. But which is more profitable, 100 sales at razor thin margins or ten sales at healthy margins?
This is the second time in 4 years that Circuit City has made these cuts. In 2003 Circuit City eliminated the commission system and fired many of their high producers. For those who are not concerned about the social and personal disruption this caused, they should understand that this is a move of either greed or desperation. Either way, this second round of cuts is a sign that low moral, lack of product knowledge and declining sales will soon follow.
My advice for consumers is go to COSTCO. COSTCO is a company that defies Wall Street and continues to pay high wages, provides health care, continues to prosper and provides low prices.
Everyone seems to have the same general thought. Short term may give Circuit City a bump in their stock value but this isn’t the same juggernaut of several years ago. There was a time when I entered a Circuit City, I knew I’d receive knowledgeable help and end up with what I came in for. Those days have long since passed.
If I had to choose a differentiation, quality and service was it for Circuit City–was being the key word. To offer real customer service like Geek Squad with Best Buy, it has to be an entirely separate service. By the way, Best Buy does a good job of selling people on this service because in actuality, Geek Squad is not free.
I’ve never been impressed with their marketing, not that advertising and marketing are the answer. Your point of sale is still very important but obviously not to the corporate hierarchy at Circuit City. With no incentive for employees except “if you do your job you’ll be laid off,” stock value concerns or not, Circuit City’s predicament will only get worse.
They are definitely digging their own grave.
Nasty business. But now what will we do, shop at CompUSA? Some retail concerns, like many other service-information oriented specialties, are better served by automation. Others still require experienced sales people. (Do-it-yourself construction as Home Depot has shown….) The question would be this. What could CC profitability sell that really needs the skills of those employees?
Reading the comments further down I had a couple of more thoughts on this.
If I were CEO here 🙂 I would have taken those ‘high paid’ employees who are most likely geeks themselves and trained them to up-sell on televisions… push the works here, HD is just going to grow and with it, surround sound, various flavor DVD/DVR (and still VCR at this point) plus tables or cabinets for the stuff. I’d have them use the floor model computers & printers to map out connections to what the consumer is buying and print it out for him. This would combat the BB ‘geek squad’ and the consumer is leaving the building with directions on hooking up his particular purchases (integrate cable/dish if he has it). This would also help sell $$$ cables, all in one swoop. Consumer leaves with 100% of what he needs in equipment and knowledge and can start to assemble the stuff as soon as he gets it.
You need good camera people too – models change every few months and there’s room to up-sell there and a lot of room for growth. At this point, most people are computer savvy and don’t need much help in that department. Same with the iPod stuff.
Save the money by having the $7.50 an hour people in charge of DVDs, phones, extra PC stuff like routers, modems, external hard drives, etc. Most tech savvy high school kids know the basics on that.
I have shopped in Circuit City and already find their sales people very poor. I have walked out of the store without purchasing the electronics I went in for, for this reason. Firing their “best” sales people and replacing them with lower paid people, who probably won’t care about the customer because they are there just to make a couple of dollars (mostly kids) will have more people walking out of the store, promising never to go back, like I did.
Employees need more opportunities to make significant dollars and will work much harder if they are well compensated for their effort. This is human nature.
I believe this strategy could be a death sentence for Circuit City. The key in today’s world is to find ways to train and incent employees for optimal customer service, otherwise they will lose all their customers to stores who understand the importance of customer service!
3,400 of the most highly paid workers in Circuit City are being eliminated. Any way you communicate this decision, it’s not a win/win, it’s a win/lose. At first blush, it seems the senior team has clearly been misguided by its lack of truly leading in turbulent times. I don’t view this as a competitive strategy. Second, as we all know, the cost of replacing top human capital will be more than just dollars. The intellectual loss, culture they built, morale they created and the knowledge drain that will occur will be enormous. If you have brand loyal, savvy customers that understand talent management, they will vote with their wallets. Circuit City has just created a new case study for Harvard Business School, as this will be a turning point in the wrong direction for Circuit City. The senior team could have taken a play out of John Mackey’s book (Whole Foods-CEO) as an attempt to grow a new compensation model. When you pay over $2 million for one consultant, you have to ask, does the Board/Senior team have the right people on the bus, in the right seats to begin with?
Companies that do not value, respect and reward their people typically do not value, respect and reward their customers either. Top management focused on stock price and their personal stock options are the ones who should be removed and replaced by the hourly people who actually understand and care about the store.
Again, corporate profit ahead of all else. When will corporate legacies realize that the employees are part, not only of the structure, but of the whole of society, and as such, have a requirement to enjoy sufficient income to be a participant in that society?
At one time in my career, people in the organisation were paid quite handsomely and became an integral part of the local and national economy. After I left the company, salaries were halved and morale tanked, work became a bore and quality suffered such that the company died.
I did not hold that the company should be so loyal to the few at the top and that all others were merely slaves to ensure top salaries and benefits to the executives. In retrospect, the investors learned that they did quite well and for them the return was steady and reliable.
In today’s corporate structure, greed is the driver. Home Despot (sic) Short-Circuit City (sic) and many of the food chains have, in an effort to boost shareholders advantages, committed a slow but inevitable suicide by continuing a practise of [sabotaging] the very core of their success.
The names may survive, if only as that, but the life of these companies is ending. And truly, it’s an ugly death. The executives that end up skimming the cream will, in the end, suffer, as well they should. There just won’t be the big news flash and the commentaries such as we create here, to hash over.
Sounds like the same sort of “strategy” that got Home Depot in so much trouble over the long haul…running a business that depends at least partially on customer service and product knowledge with a “lowest common denominator” approach to hiring. At least Home Depot had enough time and critical mass to begin correcting its mistake. Circuit City is not “best in class” to begin with and this sort of move might hasten their demise, even though the move is probably reactive to margin and other bottom-line pressures.
Just as Home Depot used to pride itself on its sales associates’ knowledge of products and friendly consumer experience, with tips and methods to consider for the completion of consumers’ projects, Circuit City will find that part time help will not be trained properly on products, nor take the care to serve the consumer, P> Some corporations just don’t get it. And cost cutting is first, while consumers suffer.
Might we ask, who really is to blame for the Circuit City mess? Hmmmmmmmmmmmmm
Obviously from a PR perspective, this could hardly be worse, and just sounds like some type of classic Neanderthal management strategy, as it is being portrayed everywhere, and in a number of the comments above.
However, the real questions, it seems to me, are:
(1) Is Circuit City management brain dead and totally lacking data on the impact of this, or, from a pure business decision (forgetting the PR) is this really the right move? Few commentators seem to be considering that this is may be what the numbers say. If training and employee quality, etc. really paid off, you have to assume the great majority of retail CEOs are just [crazy] for not going down that path.
(2) Is it possible for retailers in many market segments to pay much more than minimum wage and still make a decent profit? Or is the price competition both from traditional stores and the web now such that you just can’t make money paying people $12 an hour? Would be a shame if that’s the case, but it just may be true.
Circuit City is sending a message to their customers that says “There is something wrong with our company, don’t shop here. We are stupid, cannot compete with Best Buy, and don’t know how to make a profit.” Why would anyone want to shop at Circuit City knowing that they are in desperate financial trouble and have publicly announced their difficulties? By firing your highest paid employees, Circuit City is probably firing its best and most experienced employees. With the massive shortage in retail labor, they should have no trouble finding a comparable job someplace else. Only those who are unemployable will reapply for their jobs. Then Circuit City will be stuck with an unemployable workforce, which will spell the end to their existence. Publicly disclosing distressing financial information scares away customers. Circuit City should have put a different spin on the story just saying they are hiring new workers without ever mentioning they are also firing workers.
The layoffs in the consumer electronics channels of trade reflect much greater issues and challenges within. In terms of how in the short term the layoffs will impact morale I don’t think the consumer will notice a significant difference because morale and the quality of service was not particularly inspiring to start with. The consumer products sold in this channel and how they are marketed and sold to consumers have evolved and changed over the past several years and its obvious that the retail channel itself needs tweaking and change in its approach to the consumer. The suppliers can help by doing their best job to help retail stores with the training of in-store personnel to enhance product knowledge. When a retail-store employee is armed with greater knowledge and some reasonable incentive then the morale will improve. By all means the retail employee should also have opportunities to earn a basic salary plus some commission, as well. Consumers want knowledge and consumers want to be sold.
Interesting that at the time Best Buy is emphasizing its employees’ knowledge with its Geek Squad, Circuit City fires probably its most knowledgeable group of employees–the highest paid–who probably worked there the longest to become highly paid. Seems to me its time to buy Best Buy stock.
Classic short term versus long term thinking. I give Circuit City 1 year max and they’ll be a bad memory….
There will always be a need for personal customer service in the electronics category. Best Buy’s approach to targeted consumer segmentation with the Magnolia Home Theater “Store Within a Store” for affluent neighborhoods shows that the company “gets it” in terms of profitability through up-selling and in-store education. I worked at Circuit City as a Sales Counselor for many years during my college days, and it is going to be sad to see the continual downward spiral of the company as they lose the only shot they had at competing head-to-head with the other category killers on a store-by-store basis: people, knowledge, and service.
Let’s face it, laying off or outsourcing is the easiest and fastest way to increase profit dollars–in the short term. It’s what makes Wall Street happy. It’s why companies do it.
In the long term, it’s bad for companies to do this as it creates, after a short while, a knowledge vacuum at the point that is most important–interaction with the paying customers. To cover a shrinking customer base, prices go up. Everyone loses eventually.
Technology changes all the time and unless you are a techie aficionado or have hours to devote to the study of new products, there is no way to keep up with it. You need good, knowledgeable, familiar and friendly staff to build that trust bond with customers who are considering spending big $$$ on computers, HD TVs, Sound systems, high tech cameras, etc. Especially these days when most of that equipment requires an engineering degree to assimilate it all and the time required to understand the sometimes subtle differences between brands and equipment ability.
This is a sure fire way to hasten the continued fall of sales. They are not going to fool anyone by cutting the expense for the people who should drive their business. The issue should be to better train their sales people in closing a sale. They are terrific at explaining the products but seem to have very little idea as to how to close a sale. By hiring lower level people they are going to get poorer performance, more turnover, more dissatisfied customers and lower sales. Morale is going to suffer at every level. If they think they are paying too much, set up a commission or bonus scale that will attract people who want to sell, that are just not techie lovers. The end is near and it does not have to be. Interestingly, I think their online sales people are knowledgeable and do know how to close a sale. Perhaps the first person to be let go should be the one who made this decision.
In the front-page article USA TODAY ran on March 29, 2007, Circuit City spokesman Jim Babb said “We’ve got to get our stores to adhere to wage ranges.” My question is this: Who is running Circuit City, company management or the store managers?
If I had to go to a job that I have had for years making a certain amount of money each week to find out that I had lost my job but could be rehired at a lower pay rate, I definitely would not work as hard as I used to. I would do less then I normally would do because I was making less money. You get what you pay for; say I’m working my butt off for $15.00 an hour and now I have to work for $8.00 an hour, you sure would not see busting my hump at that job. Low wages are for inexperienced employees, not for trained and highly productive employees. I won’t be buying anything from Circuit City anymore.
Circuit City is forgetting how consumers buy their electronic gadgets today. There are so many options with technology changing rapidly that consumers want to discuss those options with an expert. Laying off tenured, well compensated employees says to me that my experience will be with a minimum wage, DUH! Therefore, consumers will go other places to purchase their products. This is a death sentence; not only does CC have to worry about the negative impact of consumers, but what intelligent person would send in a resume to Circuit City? Once the new employee has worked hard and earned a raise they have a risk of being terminated because they make too much!?!? This evidently was not well thought out. Good luck CC, you’ll need it.
Cheaper employees doesn’t mean better employees. If the employees are lower quality, personally, I wouldn’t ask them a question. They are not going to try as hard to learn the information for these large purchases. If I were to hire an employee for a retail position, I would hire them for their worth. If an employee is not paid their worth they will leave. The increase in the turn over rate will increase, which will essentially decrease productivity. With the decrease of productivity, the price to cover overhead costs will increase, discouraging customers to come to their store over a period of time. Why would you give the competition what they want?
What a shame.
Employees suffer because the company made a terrible merchandising decision to excessively price cut over the holiday season. The CE industry CHOSE to get into a price war on plasma TVs. Science-based retailing went out the window. Hysteria has reigned for 5 months. The consequences are suffered by those who can least afford it.
Circuit City, which was becoming an industry leader in customer service now falls back into the pack.
Really, it’s a shame.
Sears has figured out that just having hourly waged employees in their tool department meant no customer service. They changed a month ago to hourly plus commission. Amazingly, overnight they took their hands off their text messaging and started talking to the customers. Their appliance folks are still 100% commission so they are always wanting to fight over customers. Circuit City needs experienced sales people to get sales. Commissioned based is the best way to get a work force moving.
Let’s see….Highland Appliance, Fretter Appliance, Crazy Eddie’s, Silo….Do I see a pattern here?…low margins, especially in consumer electronics can be definitely offset by customer service & a knowledgeable sales staff. CC doesn’t get it by their move. Too bad.
Best Buy is already kicking Circuit City’s butt. With decisions like this, the repercussion will be devastating to CC’s already lower sales. One of Best Buy’s disadvantages is customer service. This was the only way Circuit City could’ve knock out its competitor, but they have now lost it all. I think we will be able to see it in the news as time goes by. Personnel is the best asset a company can have for growth.
Yet another example of c-level and senior management at companies using their superior intellect and decision making expertise to help us commoners at the lower levels of the food chain.
I would bet my entire 401(k)–that’s cash money folks–management will walk away with very large bonuses, etc. for [givin’ the boot to] the most productive workers in the field.
When in the [heck] are you guys at the top going to get it? Oh yeah, sorry…I forgot; NEVER!
I never thought I would say this, but maybe it’s time UNIONS made a comeback.
Recipe for disaster! They should have just closed under performing stores, or closed them all and just be an online retailer. If you are going to get rid of your best people who actually know products and can help inform the end consumer, or better yet, verify what they have already researched online, then you might as well set up shop as an online retailer. Most of their sales people now will just be order takers and will not offer the consumer anything.
CC has to do what it has to do to compete in what is a very competitive marketplace. While gutting your workforce when sales are down is probably not the best way to overcome a drought, if there is a strict plan in place, CC can possibly restore the luster this chain once had.
If I were the VP of Ops, I would think reinvesting 20%-40% of the cost savings back into training and retraining would be ideal with a strong focus on customer service. Also, I would make sure that my vendors are behind us 100% and provide product knowledge workshops and in services for all the new (read: cheaper) associates coming in. Overall, in the short term this move will impact negatively but if there is a strategy (and it’s not just a cost cutting move), CC can overcome its current woes in the medium and long terms.