Circuit City layoffs set a scary precedent for workers

April 9th, 2007
By Larry Lubell

Posted Mar 29th 2007 2:45PM by Peter Cohan

In an article posted on bloggingstocks Peter Cohan reports that“Circuit City Stores Inc. is replacing its experienced workers with cheaper models”. He then goes on to ask “What does Circuit City’s replacing of its retail workers mean for workers and their salaries across the board”? He continues by spelling out “The plan” which consisted of “Circuit City’s decision to fire 3,400 of its highest-paid sales staff and replace them with lower-paid workers is a risky strategy to cut costs that goes beyond the traditional layoffs, buyouts and hiring freezes used by struggling companies”. “I think this is a risky move because the quality of service to customers will almost certainly decline since the higher paid people who were fired will take with them product expertise that consumers found helpful. Circuit City is gambling that the sales it loses as a result of the less experienced staff will be more than offset by the lower pay the new rookies receive”. The interesting question that Peter Cohan raises is how does a business decide between whether to trade on price or service?Most companies, when asked, will tell you that they offer both the “Lowest price” as well as the “Highest level of service”. Privately, they will admit to each other that often there are choices and trade offs that need to be made. Ultimately the best companies and the smartest consumers search for “VALUE”.“Value” is inherently about compromise and is therefore quite subjective. The Ferrari Enzo with the ability to reach 0-62 mph in just 3.65 seconds and a top speed of 225 mph, no one could deny that it is a first class sports car, but with a million dollar price tag one could claim that it is not a great value. In a service business the compromise comes in the form the amount of knowledge, Experience and Time (KET) that representatives can offer the customer. The greater the amount of KET the greater cost to the company. In these days of the Internet and price search engines it is easier than ever to search based on price, but increasingly more difficult to shop based on value. At Urban Insurance Agency, we have always worked hard to provide the highest quality of service why still maintaining very competitive prices. We have employees that have been with Urban Auto for more than 10, 20, 30 even 45+ years. We do not have any seven figure employees, or marble floors. We have selected to place our offices in convenient, yet lower rent locations, all in an effort to keep our costs as low as possible without sacrificing the quality of our customer service. Often people only care about price, until they have a problem; at Urban Insurance Agency we refuse to “Farm-out” our customer service to a third-party call center, or outsource service to India. It can be a more difficult sell, but It is my belief that people will return to those companies that “Solve their problems,” that requires a knowledgeable staff that are empowered to make decisions. My personal experiences with Circuit City has left me with the impression that few of the employees there have more than just a superficial level of knowledge about the electronics the store sells. The idea that circuit city is going to eliminate the only employees that “Have a clue,” strikes me as a self-defeating proposition.In this age of HD, where today’s cutting-edge technology will be hopelessly obsolete in 2 years, consumers are looking for information. They want companies that can solve problems
I buy all of my Home Audio and HD equipment for a small independent guy. He does not stock much, but he will order what ever you want and at a price at times lower than Circuit City or Best Buy. The important thing is he knows how to take the equipment apart and put it back together. When I came into buy a new DVD player, he remembered which HD TV I had in which room hooked up to which receiver; so he gave me the correct inter connects.
More and more, Circuit City is becoming a display case for small shops to send customers to look and compare, then come back to them to buy. The reason for that is because many consumers just have little confidence in the information or advice they get at these “Big-Box Stores.” Therefore they can only sell on price and the margins are too small to be profitable.
I understand why they feel compelled to cut costs, but by getting rid of their most skilled employees and replacing them with minimum wage clerks is just going to guarantee the company’s downward slide. There is a reason new car dealers don’t replace their sales people with $7.00/ hour people. It is my belief that people will return to those companies that “Solve their problems,” answer their questions, that requires a knowledgeable staff that are empowered to make decisions not minimum wage untrained workers. Circuit City’s days are numbered.

Larry Lubell

UrbanBlogPosted at 6:08PM