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For starters, imagine what a wonderful effect this kind of move has on employee morale. Sure, it sucks for the 3,400 high-rollers to be told that they have to hit the bricks. But, chances are, those employees who survived the cut didn't care much for those prima donnas with their fancy cars, anyway.
To the contrary, this move says, to the rank and file who've been allowed to hang around: We are all in this together. We appreciate the fact that you are not trying to break the bank by earning increases to your compensation in these difficult times.
Customers are sure to feel the soundness of the new Circuit City strategy right away. As shoppers with questions about products, we'll no longer be forced to deal with the Terrell Owensesque, me-first attitudes of the deposed fat cats. Instead (assuming we can find a store employee at all), we'll be served by a less experienced workforce that may know less about the products and where they are located, but is rightfully a heck of a lot more humble about it.
As a parting shot, the 3,400 displaced workers were no doubt comforted by a statement issued by the company quoting Circuit City president, chairman and CEO Philip Schoonover saying that the layoffs and other moves were part of the company's ongoing effort to evaluate and challenge all aspects of its expenses to "eliminate entire pieces of non-value added work." That kind of appreciation from the man at the top will beat a gold watch every time.
Schoonover added, "Unfortunately, a number of associates are directly impacted by the actions, but we are making Circuit City stronger for the long term." Right on.
In all serious, let's set aside for a moment the cruelty of what could fairly be called a heartless move. You could argue that Circuit City's actions are no different from the actions of hundreds of other companies, and that Circuit City is simply being more honest about it. This is business, after all, and business is heartless by necessity. Perhaps a more relevant point here is that this move is bad business.
How so? First off all, the guess here is that this move will actually have the opposite affect on employee morale as stated above (that was sarcasm, by the way). It seems much more likely that those employees that didn't get canned would take the action by corporate headquarters as a signal to start looking for work. (By the way, the layoffs involved store "associates" only, not managers, assistant managers, etc.)
So where does this leave the workforce at the local Circuit City? Well, the company has trimmed the fat by getting rid of the workers who made the most money and presumably had the most experience under their belts. Employees that managed to stick around, realizing that working at Circuit City no longer offers the quick, easy path to riches that it once did, are dusting off their resumes. What do we have left? Store management. Current employees that didn't make enough money to raise eyebrows but don't have the skills to find a new job. And brand new people willing to work for less money than those that got shown the door.
How much money? Well, Eve Tahmincioglu of MSNBC.com, in a posting dated Thursday, cites career Web site Vault.com as saying Circuit City employees who listed their salary information reported earning $8 to $15 per hour. (Schoonover, by the way, pulled down $716,346 in salary and a $704,700 bonus last year and has $3 million in stock options, according to an article in Thursday's Washington Post.)
Tahmincioglu's posting goes on to quote Kevin Clark, an assistant professor of management at Villanova School of Business, wondering aloud where Circuit City will find qualified workers at a significantly lower wage (especially considering that minimum wage is currently $5.15, though higher in most states, and Congress is moving to raise it to $7.25).
But Circuit City is undeterred. The company expects the layoffs and other moves to save it $110 million in 2008 and at least $140 million annually beginning in fiscal 2009. Meanwhile, the company spent $100 million on stock repurchases in the fourth quarter.
Retail business is tough in general. Perhaps most of all in consumer electronics, where the rapid communization of products and growth of online sales channels has resulted in cutthroat business practices and mass store closures. Circuit City itself announced plans last month to close 69 stores and one U.S. distribution center. Another major consumer electronics retailer, Tweeter Home Entertainment Group Inc., said last week it plans to close 49 stores and two regional facilities, effectively closing its business in several regions of the country.
Desperate times call for desperate measures. But any business—retail or otherwise—that takes on measures that include systematically clearing out employees who are presumably the most experienced and have earned the greatest financial rewards, is in trouble. Talented people are the lifeblood of any organization. Employees and, eventually, customers, are going to be more difficult to come by for Circuit City from here on out. The $100 million spent on stock repurchases in the fourth quarter may turn out to have been a very bad investment—even worse than wasting money on the people minding the shop.
Posted by Dylan McGrath on Mar 29, 2007 08:09 PM in Consumer
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