enx magazine

Last March, in the name of profit, company executives fired 3400 of their highest-paid and most experienced sales staff and replaced them with inexperienced people making $8 an hour.

They said they no longer needed the people who could tell customers the advantages of one digital camera over another, or explain which accessories could be used on both a Mac computer and a PC. “Customers can get that information on the Internet,” said these wise, highly-paid company executives.

Circuit City told the laid-off employees that they could reapply for their jobs in 10 weeks if they were willing to work for a smaller paycheck – in some cases about half their previous wage.

Result: In the past year, Circuit City’s stock has lost 76 percent of its value.

The market paid back the company for firing its longtime employees.

Analysts warned that the increasing complexity of electronic products made customer service too important to ignore and that the company’s stinginess would come back to haunt it later. Circuit City executives should have listened to the analysts.

Cost Cutting Leads to Falling Stock

In fact, the market responded in kind. Last month, Circuit City’s net loss was twice as bad as had been predicted for the third quarter that ended November 30th. Its stock fell to less than $5 per share.

CEO Philip Schoonover, whose cash benefits amounted to nearly $7 million in 2007, according to Forbes.com, told shareholders that the problems that led to the drop in stock value “are primarily self-induced ” (you think?) “. . . and are within our control to improve.” The company, he acknowledged, underestimated the effect of the cost-saving moves on sales. “Our current focus is to rebuild our selling culture,” he said.

Possibly, Circuit City had a visit from the ghosts of its past, present and future and saw where it went wrong.

Admitting a monumental mistake is a good start toward reversing course. In the corporate culture that encourages attention only to stock value, Circuit City gambled that firing its most experienced employees to save money would improve its bottom line.

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