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RICHMOND, Va. -- In a cost-cutting move that challenges the role of customer service vs. profitability, Circuit City Stores, Inc. -- the nation's No. 2 consumer electronics retailer based here -- said yesterday it plans to lay off about 3,400 retail workers, or 8.5 percent of its in-store staff, and hire lower-paid employees to replace them. It is also trimming about 130 corporate information-technology jobs.
Circuit City, which has been struggling, said the store workers being laid off were earning "well above the market-based salary range for their role." They will be replaced as soon as possible with employees who will be paid at the current market range, the company said in a news release.
"We are taking a number of aggressive actions to improve our cost and expense structure, which will better position us for improved and sustainable returns in today's marketplace," Philip J. Schoonover, Circuit City's chief executive, said in a statement.
Circuit City employs about 40,000 part-time and full-time store employees, spokeswoman Jackie Foreman told The Associated Press. Those being laid off will get severance packages and may apply for any open positions after 10 weeks.
"We are somewhat concerned that management's decision to lay off its most highly compensated 3,400 associates and replace them with less expensive new hires will be very disruptive and favors short-term earnings at the expense of long-term competitive positioning," Merrill Lynch analyst Danielle Fox wrote in a note to clients.
"It could prove difficult to differentiate Circuit City from Best Buy and its mass merchant competition if it compromises on service," Fox said. "We are struck by how different Circuit City's current strategy is from that of Home Depot, which is adding experienced new hires and raising pay bands."