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Circuit City takes further steps to reduce its costs

Hot on the heels of the announcement that CompUSA and Tweeter are closing 126 and 53 stores respectively is word that Circuit City is firing 3,400 employees and bringing in lower-cost workers to fill their roles. The company says that the move is aimed to help realign its cost and expense structure.

"These actions represent the execution phase of the work initiated this winter to accelerate Circuit City's transformation. We expect to 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," said Philip J. Schoonover, chairman, president and chief executive officer for Circuit City. "Unfortunately, a number of Associates are directly impacted by the actions, but we are making Circuit City stronger for the long term."

This move comes after Circuit City announced in February that it was closing 62 stores in Canada along with seven underperforming stores in the United States.

The 3,400 employees affected by the job cuts represent 8% of Circuit City's total work force. Employees will be given four weeks’ worth of severance pay and will have the option of reapplying for their positions at a lower pay grade after a 10-week hiatus.

"This strategy strikes me as being quite cold," said Bernard Baumohl, an executive director for The Economic Outlook Group. "I don't think it's in the best interest of Circuit City as a whole."

Likewise, Timothy Allen, an analyst for Jefferies & Co., said that the move could end up backfiring for the company. "It's definitely going to have some cost-savings, but I think the bigger impact could be seen in weaker, poor service," said Allen. "I have a feeling the people they're letting go have probably been there longer, have more experience, more product knowledge."

Jose Macias of San Diego, California was fortunate enough to skate through Circuit City's jobs cuts in 2003. At that time, employees making more than $18 an hour were fired -- Macias was making $17.70 an hour at the time. This time around, Macias wasn't so lucky. His hourly rate translated to $18.72 an hour which is well above the full-time pay cap up $15.50 for his department.

"I dedicated seven years to them. Loyalty gets you nothing," said Macias.

Circuit City also plans to outsource its IT infrastructure operations to IBM in order to reduce costs by roughly 16%. This separate move will affect an additional 130 employees -- 50 of which will become IBM employees while the other 80 will be fired.

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Sign of the times
By saltypeanuts on 3/29/2007 4:27:21 AM , Rating: 5
For any type of computer components or electronics I never purchase at a brick and mortar store, its online all the time for me. Most of the time its free shipping and no sales tax and the prices are way cheaper. Markups are to high at places like this.

It is a shame for the long term employees. As a long term employee of Costco (11 years), I would be absolutely devestated if they did this.




RE: Sign of the times
By ninjit on 3/29/2007 4:37:57 AM , Rating: 5
Which is exactly why all these computer/electronic superstores are closing shop. The tech savy buyer is more likely to make all their purchases online these days.

I don't remember the last time I even stepped inside a BestBuy, CircuitCity, or likes. I pretty much do all my shopping at local grocery stores, Costco, and online (amazon, mostly) in that order.


RE: Sign of the times
By FITCamaro on 3/29/2007 8:59:47 AM , Rating: 5
Well luckily for stores like Best Buy and Circuit City, tech savy people represent about 5-10% of the US population. The rest are people who think an Emachine is a quality computer.

I shop for DVDs, video games, and larger items at Best Buy and Circuit City. I like being able to take larger items back to a store if I have a problem since its kind of a pain in the butt to ship a large TV back if it doesn't work out of the box. Also as I live in an area that sees lots of rain, I like the warranties Best Buy offers that cover surges. I got a 21" TV replaced with a 23" TV for $60 because I had lightning fry it. Just took it back, showed the warranty, got the same money I paid for the TV 3 years ago to buy a new TV, and then just had to pay for a new warranty. Unfortunately I didn't have it on my speakers. :(

I understood when CC fired people when they went to hourly because with the commissioned pay there, the floor employees were at times making twice what their full time managers made. There was one guy in Tampa I heard about who was making $100,000 a year because he was a good salesman. It's not a bad thing to be a good salesman but when your supervisor makes $35-40,000, is full-time, and has more responsibility, thats a problem. Basically it creates an atmosphere where no one wants to be promoted. However this time around, I think they at the least should have offered them a choice of take the max allowed pay or loose your job. Not just fire them.

Circuit City's real problem as far as I'm concerned is the high price of their extended warranties. For the same TV, the Best Buy warranty is always a good amount cheaper than Circuit City's. They do sell some higher end stuff than Best Buy but still, the warranty price is high.


RE: Sign of the times
By BMFPitt on 3/29/2007 9:44:05 AM , Rating: 5
quote:
There was one guy in Tampa I heard about who was making $100,000 a year because he was a good salesman. It's not a bad thing to be a good salesman but when your supervisor makes $35-40,000, is full-time, and has more responsibility


I would consider firing people for being good salesmen to be outstandingly bad business practice.


RE: Sign of the times
By Xavier40 on 3/29/2007 11:27:49 AM , Rating: 1
quote:
There was one guy in Tampa I heard about who was making $100,000 a year because he was a good salesman. It's not a bad thing to be a good salesman but when your supervisor makes $35-40,000, is full-time, and has more responsibility.

Circuit City no longer pays commision as of 2003; www.stereophile.com/news/11569/
February 9, 2003 — The continuing recession is hitting Circuit City hard.

In early February, North America's second largest electronics retailer announced sweeping cutbacks of its workforce, including the dismissal of approximately 3900 commissioned salespeople and the shuttering of 10 repair centers. Circuit City's sales force will move to an hourly wage, a measure that CEO Alan McCollough (now former CEO) said will save the company about $130 million in payroll costs this year. (Apparently not enough to save the additional 3,400 this year).


RE: Sign of the times
By BMFPitt on 3/29/2007 12:32:31 PM , Rating: 3
Yep, firing a bunch of commissioned salespeople will save a ton on payroll. So would changing store hours to 9am-5pm. Both will cause them to lose far more money than they save in the long run.

If I (directly) owned any CC stock, I'd be selling right now.


RE: Sign of the times
By jon1003 on 3/29/2007 11:32:15 AM , Rating: 5
quote:
I would consider firing people for being good salesmen to be outstandingly bad business practice.
Compusa did the same thing(fired best salespeople). You see where they are. You need to base commission off of the contribution margin of the product(profit), and sales people who convince someone to buy something instead of just standing there and letting them walk out of the store should be retained. Circuit city needs to go back to business school and learn the basics.


RE: Sign of the times
By xphile on 3/29/2007 9:21:23 PM , Rating: 5
As someone in business I would just comment that its really just a simple matter of asking yourself "What is it we do?"

If you are a sales outlet then selling is actually your most important task. If you are a service outlet then it is servicing etc. In order for a large group of salesman to do what they do you do obviously need management to organize other things, but where it all goes wrong in these big companies is that management all see themselves as the most important people doing the most important jobs.

The reality is that no matter how big you are and how many manager you need to support the huge number of sales staff you might have, your primary function is still sales and the staff performing that primary function are your most important asset.

If paying them based on commission sees someone earning more than the CEO then put your hands in the air and praise your god, because to get that commission they have sold an incredibly huge amount of stock and made an incredible impact to your profitability and stock value.

The manager that says you cant earn more than me - you're fired, or you earn more than X, you're fired, is the biggest idiot out there with the fastest failing business. When all the good salesmen get fired and there is no more money coming in, all the managers can hold a tea party and try and figure out where their salary is going to come from because none of them actual performs any task which directly financially assists a sales oriented business.

On a footnote, I know an IBM salesperson who regularly takes home more than her boss, and more than his boss in turn as as well. Its no problem for IBM, they know full well how a successful business needs to work. You achieve you get rewarded, everyone wins.


RE: Sign of the times
By Googer on 4/4/2007 3:24:26 AM , Rating: 2
quote:
I would consider firing people for being good salesmen to be outstandingly bad business practice.


quote:
Compusa did the same thing(fired best salespeople). You see where they are. You need to base commission off of the contribution margin of the product(profit), and sales people who convince someone to buy something instead of just standing there and letting them walk out of the store should be retained. Circuit city needs to go back to business school and learn the basics.


They should take a lesson from Jack Welch aka the Former CEO of General Electric (GE) and fire the Bottom 10% every year. But no, Were Circuit City and We do things diferantly and fire the best 10% every year.

No wonder their employees are so clueless as to try to convince me that Sony and Onkyo are the same company..... Idiots! It's like reverse Darwinism..


RE: Sign of the times
By Chaser on 3/29/07, Rating: 0
RE: Sign of the times
By darkpaw on 3/29/2007 1:05:38 PM , Rating: 2
Not if they generate 200,000+ a year in GP(gross profit).

I worked for a small computer wholesaler when I was in college. The highest paid guy at the company was not the owner, it was one of the sales people. Why? Because that single person accounted for a huge % of the companies total GP. It doesn't matter if the sales person makes more then management if they are doing their job well and they deliver *satisfied, repeat* customers. Salesman that do well because they screw over their customers are another story all together. They may show good numbers in a given period, but if their customers don't come back then in the long run they hurt the company more.

Most of these types of sales people end up in the single shot sales businesses like high end jewlery or cars. They don't really care about long term purchase commitments, but for many companies (especially wholesalers, parts houses) its all about the long term relationship and doing numerous sales over years instead of giant deals once every few years.


RE: Sign of the times
By rcc on 3/29/2007 1:33:42 PM , Rating: 2
quote:
I would say paying someone who works the sales floor $100,000 a year salary would be a pretty self destructive business practice too.


Absolutely not! If, of course, (and this is a big if) your commission structure is set up right. If it is, and your salesman sold enough product to get $100,000 worth of salary and commission it is a win-win situation, because the store benefits from the high sales.

Problem with stores like Circuit City, Fry's, Best Buy, CompUSA, etc. is that margin's tend to be low, and variable. And the commission structure is hardly ever geared properly.


RE: Sign of the times
By masher2 (blog) on 3/29/2007 9:50:11 AM , Rating: 3
> "I think they at the least should have offered them a choice of take the max allowed pay or loose your job..."

There are regulatory issues in many states with forcing a paycut on people. I'm sure that, without this hurdle to cross, Circuit City would have been glad to do such.


RE: Sign of the times
By johnsonx on 3/29/2007 11:39:27 AM , Rating: 3
Good thing the government saved these poor workers from being offered a pay cut!


RE: Sign of the times
By rtrski on 3/29/2007 1:19:03 PM , Rating: 2
Not that I know of, so long as they're being paid above minimum wage. But I freely admit my knowledge here isn't global.

In any right to work state, where you can be fired w/out justification (you're not under any sort of employment contract), they can also cut your pay for no reason. Happened to some people I know in very high ranking positions of a high-tech software job (my former employer), and the company didn't even bother to inform them...they found out only after getting their first reduced paycheck and calling up to ask 'what the heck...?' They weren't even told they were doing a bad job...just told 'under the new corporate structure we thought you were overcompensated. Suck it up.' (not a direct quote)

Cowardly as hell, and sends a really piss-poor message to the employees effected as well as all the others (look what we can do to you), but not illegal unless someone could try to prove it was retaliatory or discriminatory in nature. A cut can't be made retroactive (cut pay for hours already worked) and I think civil servants have specific pay retention rules, but unless you've got some sort of employment contract with a commercial employer, I don't know what law would be violated.


RE: Sign of the times
By rtrski on 3/29/2007 1:21:01 PM , Rating: 2
...oh, forgot to mention union protection of course as another preventative to pay cuts. But again, that doesn't apply here.


RE: Sign of the times
By masher2 (blog) on 3/29/2007 2:03:49 PM , Rating: 2
> "the company didn't even bother to inform them...they found out only after getting their first reduced paycheck and calling up to ask 'what the heck...?"

I call BS on this one. It's not even an issue with federal wage law; its a civil violation. If you've agreed to pay a certain rate, you can't change that agreement without prior notice. That notice can be so short as to be immediate...but you can't find out about it after you've already accrued under the new rate. I'm guessing your friends simply missed the notice, or exaggerated for effect.

Many states have much stricter laws. For example, in Missouri, a 30-day written advance notice is required before changing salaries or hourly rates.


RE: Sign of the times
By rtrski on 3/29/2007 4:32:49 PM , Rating: 2
As you said, notice can even be 'zero' in most states (you cite Missouri, which is one of the rare exceptions requiring an advance notice interval), so if you're on salary and paid in advance for each pay period, the paycheck itself constitutes notice of said reduction. At most the employee could argue to get the adjustment for ONE pay period, but that's it. There's no law preventing employers from lowering your pay any time they want - in advance of your 'accruing' labor, as you say - aside from the expectation you'll leave and they'll not be able to find new suckers.

Bottom line though, you original statement that regulatory issues make forcing a paycut 'harder' than just laying off overpaid employees is just plain wrong, so long as the paycut doesn't dip below minimum wage. Now you've just said all they have to do is give advanced notice...the article says everyone being laid off got a month's severance...how would forcing the paycut be harder?