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
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.