Circuit City Stores, Inc. (NYSE: CC) has really crossed the line with its latest cost cutting move. By chopping 3,400 of its most highly paid retail staffers, the country's second-biggest electronics retailer is making a losing bet that the drop in sales resulting from canning its best sales people will be more than offset by the lower pay that it gives to the less capable replacements.
Comments I received on yesterday's post suggest that Circuit City made the wrong call. Here's an example:
"I was one of the people laid off and I can guarantee that the service will decline by leaps and bounds. The seven of us that were laid off at the CC I worked at, ran the store. All of us had been there 5+ years. Circuit City states they gave us severance- 4-8 weeks pay doesn't go very far. One of the guys that was laid off had been with CC for 20+ years and was number one in the company in selling warranty. They laid off the best people!!! It just doesn't make sense. It is crazy that they think a 5 or 10 year employee could be replaced with an untrained $8 hour employee. Good Luck with that CC. I'll be at Best Buy....with all of my former Circuit City customers!"
Sour grapes? Maybe. But this comment reveals a basic truth about business which Circuit City seems to have completely ignored. It's expensive to spend money on advertising to attract new customers to replace existing customers who bolt to competitors due to lousy service. By contrast, it's far more profitable to get repeat business from your existing customers by giving them great value and super service.
But the key to doing that successfully is to attract and motivate the best people. If employees are happy, they'll give customers better service. And customers will keep coming back for more. As a result, the business will make more money since it doesn't need to keep spending to attract new customers.
That shouldn't be such a difficult concept for even corporate CEOs to understand. But then, it's easier to just cut costs by screwing over your employees and give the Wall Street analysts the numbers they want to see than to actually invest in your business and provide service to your customers.
Home Depot grew to the behemoth it is today with the brilliant "gimmick" of actually hiring staffers who knew something about the department in which they worked. The deal was that you could go to Home Depot to buy a light fixture, and there would be someone there who could explain to you how to hook it up and direct you to aisle 14 where you could find those little plastic wire connectors you would need to do it. Then, in order to feed the giant maw of Wall Street (and the bottomless pockets of the company's executives), the company cut costs, and now if you go to Home Depot and ask if ceiling tiles can be bought individually or if you have to buy the whole box, the response is likely to be either "I'm on my break" or a blank stare. But hey, at least Bob Nardelli got a nice fat golden parachute, right?
Circuit City's plan may have bumped up the stock price in the short term, but over the long term, customers are going to stop shopping there once they are presented with a staff full of disgruntled employees, many of whom had already been screwed over by CompUSA's store closing and in desperation have had to swallow their pride and take the $7/hour job at Circuit City.
I for one don't intend to wait for that to happen. I know I'll never set foot in a Circuit City store ever again. A petition has been started to send a message to Circuit City executives. So far it's been slow to gain traction, but perhaps if enough bloggers provide the link, enough signatures can be gathered to make a difference. I doubt it, but one can hope.
Meanwhile, Republicans continue to fan the flames of worker rage by pointing down the latter at illegal immigrants as the source of their problems, while all the while top executives are picking their pockets while their heads are turned.
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