Circuit City rewards loyalty with a layoff

by Linnea Kirgan, June 15th, 2007, 7:00 am

From the “how not to do business” file:

In what’s already been heralded as one of the more boneheaded business moves of 2007, Circuit City laid off 3,400 long-term employees who were being paid above market rate and said it would replace them with lower paid workers. Perhaps on the surface, this sounded like a simple cost-cutting move. But it has proven to be a PR nightmare for the company, which has been raked over the coals for firing these career clerks who’d staked their futures on Circuit City. The workers — some of whom had been with the company for nearly 20 years — were allowed to reapply for their jobs in 10 weeks for lower pay.

Circuit City probably didn’t expect the verbal drubbing it got in the press. Analysts called the cuts shortsighted and ruthless. One Washington Post columnist said the company became “a symbol of everything that is rotten about American capitalism.” Nickel and Dimed author Barbara Ehrenreich called it the “Circuit City Slaughter” and Wired blogger David Becker came up with Circuit City’s new ad campaign, “Figure It Out For Yourself, Loser.” Many shoppers swore they would no longer shop at Circuit City due to its “unconscionable” actions and called for a boycott.

What does it say about a company when it sacrifices its most experienced and loyal employees for the bottom line? What are the effects on employee morale and, more importantly perhaps, on the customer experience?

Company chief Philip Schoonover called the layoffs an unfortunate correction that was necessary because of a “lack of discipline in managing wages and rates” since many of the long-timers were market rate. (The company has since cut another 800 jobs, this time mostly managers.)

The immediate financial result was a significant fall in sales that analysts blame in part on Circuit City’s lack of knowledgeable associates to help with big ticket buys, compared to its main competitor Best Buy. In addition, it faces a potential class action lawsuit alleging age discrimination.

Some retailers have proven that investing in employees can make good business sense. The Container Store, for example, pays its employees 50-100% above industry average and regularly ends up on the Fortune “Best Companies to Work For” list.

Now that’s a list that Circuit City will not likely make this year.