Circuit City's Job Cuts Backfiring, Analysts Say
Circuit City fired 3,400 of its highest-paid store employees in March, saying it needed to hire cheaper workers to shore up its bottom line. Now, the Richmond electronics retailer says it expects to post a first-quarter loss next month, and analysts are blaming the job cuts.
The company, which on Monday also revised its outlook for the first half of its fiscal year ending Feb. 29, 2008, cited poor sales of large flat-panel and projection televisions. Analysts said Circuit City had cast off some of its most experienced and successful people and was losing business to competitors who have better-trained employees.
"I think even though sales were soft in March, this is clearly why April sales were worse. They were replaced with less knowledgeable associates," said Tim Allen, an analyst with Jefferies & Co.
In particular, the televisions showing disappointing results are "intensive sales" requiring more informed employees, Allen said. "It's a big-ticket purchase for somebody. And if they feel like they're not getting the right advice or are being misled by someone who doesn't know, it would be definitely frustrating. They will take their business elsewhere."
Ah, sharp, delicious irony. Tart as a fresh-picked stalk of rhubarb. I remember reading about the layoffs as they happened, shaking my head at the folly but figuring that the relentless hostility of Wall Street toward labor would make them overlook the fundamental unsoundness of this idea.
The company said Monday that it expects a loss from continuing operations of $80 million to $90 million for the first quarter of its 2008 fiscal year because of "substantially below-plan sales," especially of televisions.
The firings, along with several other moves, were expected to reduce expenses for the electronics retailer by $110 million in fiscal 2008 and $140 million a year starting in fiscal 2009.
Circuit City shares fell 5.3 percent, or 93 cents, to $16.52 yesterday.
Guess I was wrong. Apparently there are some things you can do to your workforce that even Wall Street thinks might be going too far. Who knew?
Actually, my secret theory is that the whiz kids in the executive suites who came up with this idea looked around the table and realized that they were overpaid and useless themselves, and so reached the general conclusion that the more money a worker made, the less valuable they must therefore be. Well, the suits obviously couldn't fire themselves, of course--that would be just silly, especially since it was their plan--but otherwise it probably sounded like a positively wizard idea.
Hat tip to Digby, who (along with commenters) shares a short burst of snark on the subject himself.*
[Updated 1/14/14: It was 2007, and I still thought Digby was a "him." Joke was on me.}