How Circuit City Failed in its Saving Efforts

11.12.08 | Work | 0 Comments | by Fred Siegmund

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Circuit City is back in the news with plans to close 155 stores and layoff thousands in bankruptcy reorganization.

I say back in the news because there was an article about Circuit City in the Washington Post back on March 29, 2007 titled Circuit City Cuts 3,400 'Overpaid' Workers.

The cuts came out of 40,000 in-store jobs; 9 percent of the company's in-store workforce. The firings were not related to job performance, but came as part of an effort to cut costs and improve the bottom line.

They were going to save on labor costs by firing their "overpaid" staff and rehiring new sales people at lower wages. That may sound like a way to save money, but now, 18 months later, there is good reason to doubt they saved any money.

Circuit City is part of retail trade in a sector called Electronics and Appliance Stores where salesmanship is important. Circuit City buyers may need to learn about complicated electronics products and how they work before they make up their mind.

Retail Salespersons do selling, which means explaining and demonstrating products, answering questions, knowing warranty terms or other product information.

In other retail sectors like gasoline stations and grocery stores, selling and salesmanship are not as important. People know if their gas tank is empty and they buy their pasta and potatoes from a cashier, not a salesperson.

Explaining and selling takes time, skill and experience and so more and better paid retail sales jobs are needed at electronic and appliance stores than gasoline stations or grocery stores.

The need for salesmanship is partly reflected in staffing where retail salespersons and their supervisors make up more than 40 percent of retail jobs. Staffing at gasoline stations contrasts with electronics and appliance stores where more than 60 percent of jobs are cashier, but virtually none are retail salespersons.

The Washington Post article informed readers that Circuit City dismissed their sales staff earning wages over of $15.50 an hour, or their most experienced and longest tenured sales staff.

We can be sure Circuit City management saved on wages, but wage savings are not cost savings unless they lower costs per dollar of sales. Ignoring productivity tells us that Circuit City management did not know the meaning of overpaid, or even how to save.

True, the economy is doing poorly now, which is probably part of Circuit City problems, but as the saying goes, "They were penny wise and pound foolish."

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

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