Circuit City Reaps What It Sowed

You may recall that Circuit City, the electronics retailer, let go 3,000 employees earlier this year – all the ones earning decent wages, in an attempt to control costs. Of course those were the most experienced employees.

Results are in:

The results add to the woes of the retailer, which operates more than 660 superstores across the US. Its shares have dropped from about $25 last December to a low of $5.06 on Friday.

The company said a sharp fall in sales of product warranties, services and other product add-ons contributed to a loss of $207.3m (Â £104.5m), or $1.26 a share.

To his credit, the CEO gets it even if he’s getting it rather too late:

Philip Schoonover, chief executive, said the problems at the retailer had been largely ”œself induced”, as efforts to reduce costs, including the dismissal of 3,000 experienced staff earlier this year, affected customers’ experiences of shopping at the store.

And while overall Christmas sales were disapointing, Circuit City can’t blame this on the general environment, because:

Best Buy, its larger rival, this week reported a 52 per cent increase in its quarterly earnings. Its same-store sales were up 6.7 per cent.

I’ve seen this far too many times. Executives who manage by spread sheet, add up the cells and think “if I could reduce the input in my salaries cost cell, and subtract 3,000 from the number of employees cell, then multiple the two–whoa, that’d really control costs!” But study after study has shown that companies that start seriously slashing workforces recover from bad times more slowly than those that keep employees around. The reason is almost certainly that you wind up slashing both muscle (useful front line employees) along with the informal networks that actually have the knowledge and experience to get the work done. Bosses who think their organizational chart reflect the reality of how the job is done are almost always fooling themselves and the most valuable employees are almost never the ones who look like it on the org chart–they’re the men and women who know everything because they’ve been around forever, often in some place that looks like it means nothing, and everyone goes to them with questions and for help.

And no CEO of a dispersed chain can have any idea who that person is in every store, but it’s almost certain to be someone who is neither the manager, nor earning below the average wage (because it’s always someone who’s been around for a while.)

Oh well, one can hope that other retailers will learn from Circuit City.

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Ian Welsh

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  • Management’s stock options are in the tank. Only now are they discovering that cutting out tens of thousands of their most experienced employees was a mistake.

    People read the news. Millions of consumers read about the way Circuit City decided to cut costs by eliminating their most loyal workers, the ones who had been there for years through previous cutbacks, elimination of benefits, and other indignities. At least among liberals in this country, there was definitely a trend never to step in Circuit City again given how they treated their workers, just as millions of people would rather shop at Costco rather than Wal-Mart.

    With Circuit City, many more people than liberals were disgusted with them, and so it’s no surprise store traffic plummeted and never recovered.

    Corporate America will definitely learn a lesson from this. The next time any big company wants to fire their most seasoned and expensive workers, they’ll do so very quietly.

  • The lesson which should be drawn from the Circuit City incident is not about publicity but the importance of trained and skilled workers to the company’s bottom line.

  • Imagine yourself as customer (now is that really so hard to do?): you go in Circuit City, and some kid off the street making minimum wage hasn’t got a clue how to service your electronic tech needs (and most likely doesn’t give a hoot either).

    Sooo…you ask to speak to management. Turns out “management” is newbies who don’t know much about their own company or its products either (and what they get paid reflects it).

    You leave the store, unsatisfied, and tell a few other people, who tell a few other people, etc about what a bummer the customer experience was.

    Quality of service goes down, customer excitement drops off, off course add-ons go down the tubes too.

    Really – how many master’s degrees does it take to figure it out?

  • that many quietly, though there are ways (attrit them away). But see, they thought analysts would love it and give them a boost. They were wrong in this case, but that’s the thought process. If that’s why you’re doing it (to manipulate stock prices even more than costs) you have to make a deal out of it.

  • The company said a sharp fall in sales of product warranties, services and other product add-ons contributed to a loss of $207.3m (£104.5m), or $1.26 a share.

    Employees have to give a damn to sell that stuff. It’s easier not to bother, and it takes a bit of sales savvy.

  • Will the Circuit City debacle convince them to rethink their hiring and firing practices? Maybe a few, but there is still a strong temptation to get rid of the higher paid workers with richer benefits, whether that means they are union vs. non-union, experienced versus raw, or old versus young. Cost cutting is all about reaching a certain numerical target, and often about avoiding the unpleasantness of firing people. Stick with the few and the expensive – it’s a lot easier for management.

  • and since corporate controls the press, well you get the picture.
    S1959 is in the docket to close the only remaining news source, the internet.

  • I expressed my displeasure with their employee relations in an e-mail to their PR people last year along with the admonition that I would never set foot in a Circuit City store ever again and I have stuck to that promise as I will continue to do. I was never a big buyer at Circuit City although I have bought several things there through the years. I view their yearly sales results as well deserved schadenfreude.

    I hate that CompUSA is closing down, and I will be ordering more products on-line now, but I will definitely be staying away from Circuit City and I discourage all of my friends from shopping there.

    Tilting at windmills is easier as one nears senior citizen status!

  • I asked a friend yesterday if he goes there and the answer was No. I never went there in the beginning and they could be gone by end of next year. I do feel bad for all the employees that had nothing to do with the CEO great idea.

  • CompUSA closing down? Aw….
    that’s bad news to me. still, i’ve wished there was yet a better alternative. -and there is one right nearby where i live, nice and handy.

  • … Circuit City for a while about 8 years ago while I was in school. A warehouse guy – stocked shelves, carried out large items and loaded them into people’s vehicles. This holiday season I needed to get a camcorder so I figured I’d head over there. Things have changed a lot in their stores.

    When I worked there, floor/sales staff worked on commission. They pounced on people as they walked in the doors. That’s obviously not the case anymore. I looked at the camcorders, found one I liked, asked to buy it at the counter, and was told to wait for a salesperson. So I waited. And waited. And waited longer as the salespeople had a little conversation in a corner. One looked up after some time and figured he walk over and see if I needed anything. He sauntered to the back room after I told which model I wanted and turns out they didn’t even have it in stock. It took me about half hour to find out they didn’t have the thing.

    And turns out they’ve stopped selling big box appliances like fridges, washers, and dryers. It’s basically all electronics now. Sad, sad, sad. There was a reason I quit that job and left that company. Oh, and the stuff they waste. Shame everything gets compacted. They’d throw out hundreds of feet of coax cable if one of the connectors was broke/stripped off. We’d always ask to take the stuff since splicing a connector is easy as hell, but the answer was always, “No.” They had to throw it out so they could write it off.

  • …………………………………………..
    The company said a sharp fall in sales of product warranties, services and other product add-ons contributed to a loss of $207.3m (£104.5m), or $1.26 a share.

    It’s difficult for me to get worked up about Circuit City, especially in comparison to a Best Buy or whatever. The quote above points out what I see as the scam aspect of a lot of electronics sales. The questionable extras that the salespeople try to push on the public. So I’m supposed to mourn the loss of jobs by the people that are skilled in pushing these scam features? True, they’re the proven sales talent. I recently saw a web item noting that Best Buy still has a fake internal web site that it shows to people that come in and want the price they saw on the web for some item. The “experienced” salesperson then goes to a web terminal and shows the rube that he was mistaken about the price – through the fake Best Buy web site. Nice quality sales practice.

    Go to any web bargain hunting site and you’ll quickly note that pushing extras on a sale is a standard practice of the most disreputable sellers. The extras are usually of questionable value and grossly overpriced. Hence the value to the seller. The harder the push on the customer for the extras, the more questionable the quality of the seller. Fly-by-night dealers do this until they become well known, at which point they move on to a different name and address, but the scheme stays the same. Great bargains in ads that never materialize, but the few rubes that fall for the extras represent great profits.

  • for one thing, i seem to recall a news article about the extravagant bonus their CEO received -wish i had the url…

    another thing; nostalgia: back in the day, they were where Tandy computer owners bought their machines and took them for repair. i loved the old Tandy computers a bunch and that was a major window shopping place for me.
    -i remember also going there for regular PC repairs once, about 1993: i had a 386 where i’d installed a hard drive with screws too long for the job, and i screwed right through some logic circuits on the solid state board atop the drive. the circuit city repair guy (can you imagine there being such now?) did a fine job soldering little fine jumper wires (3 of them)on the board. that drive never failed since. the cost of the job was nominal, cheap even.

    lastly; there’s one nearby, 3 blocks away, and my gal reeeally wants me to apply (again even) to work there. not sure why, but she loves the idea. maybe it’s the supershort commute (walking distance to me). maybe it’s the benefits (not much different from most anywhere else as far as i can tell). maybe she figures i’ll get great discounts. i dunno, but it beats working at walmart… as i say, i’ve applied there before, and they didn’t hire me (and i was a little surprised). learning now they’ve done some lay-offs somewhat explains it.

  • see i went there 7 times in my whole life.

    As a best buy employee I can tell you: we dont employ tards in management. But Circut City obviously do. That’s why there name is 1 consonant off from Circuit Sh*tty.

    So think about that. Best Buy rox as we have all the best employees & merchandise. so i guess you can throw in the towel now, sense you know by now,

  • on Best Buy employees, I think it’s just as likely that you work for Circuit City and are trying your hand without much subtlety at agent provocateur.

    “The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential.”

    – Dietrich Bonhoeffer

  • – eom

    “The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential.”

    – Dietrich Bonhoeffer

  • …my brain hurts from reading his grammar, syntax, spelling, and complete absence of thought. I’ll be glad to restore his access, just say the word.

    Turn back to the Constitution – and
    READ it.

  • – eom

    “The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential.”

    – Dietrich Bonhoeffer

  • I’ve gone there on a Sunday looking for some bit of arcane computer gear and run into their tech support guy who could tell me not only did they not stock it, but they knew who did and even called the competitor’s store and made sure that they’d hold it for me while I went over. On a Sunday afternoon yet. This was about 2 months ago.

    My experience is that our local people are pretty good (many are university students trying to pay for their education). But look out for the store rebates and special deals–there’s usually a hidden gotcha or the rebate never materializes.

  • So we had a $25 giftcard to CC (which incidentally they gave us 6 weeks ago because they messed up our purchase so badly), I decided to buy an Xbox 360 game with it. Go into CC, takes 10 mins to get someone to open the box they keep the games in. The kid (nice enough but not experienced employee) goes to ring it up and the giftcard won’t swipe. He calls it in manually and confirms the balance at $25. But he can’t make the transaction at his terminal so we go up front. Then he enters the giftcard number incorrectly and isn’t sure how to complete the transaction. We wait for a floor manager to make the transaction. She comes over, but says she must also call it in to check the balance. Finally all this is done and she sells me the game. Total time in the store for one item: ~35 mins.

    Went over to BB next door to return an Xmas gift. Even with searching for an exchange title, not finding it, and getting a giftcard credit, I was in there maybe 20 mins.

    CC can burn to the ground for all I care, every transaction there is a hassle and the staff is almost totally useless. I won’s shop there again unless there is a specific deal on a needed product.

    The horror, the horror…

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