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.
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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