Greatest Asset, My…


Circuit City's harsh layoffs give glimpse of a new world

First off, Circuit City is not a “Lean” company. So when people ask “is Lean always good for employees?,” you can also ask “when is traditional management always good for employees?”

Case in point, Circuit City. The retailer is scraping the bottom of the cost-cutting barrel with their latest move to fire 3,400 of its highest-paid retail employees with the goal of hiring cheaper labor to replace them.

As the Yahoo piece points out:

Like many companies, Circuit City has a set of company values, which it conveniently lists on its website. First among them: “Our associates are our greatest assets.”

Sure doesn't see like it. If you go into a Circuit City store (I won't be), and you run across grumbly disgruntled employees, you'll know why. I'm sure the ones who are left don't feel very valued and I'm guessing they don't feel very good about their employer.

Seems like Circuit City is in a “death spiral” race to the bottom — lower wages, crappy service, the need to further cut wages….

The article asks some other great questions:

What kind of inducement is it for employees to work hard and excel if their reward might be a pink slip? And why would people want to shop at a store where the low premium on service is so loudly trumpeted?

How can management be so devoid of ideas that they can only think of wage cutting as an “improvement?”

NY Times article

Philadelphia call for a boycott

Baltimore Sun article

What are Lean retailers, like Britain's Tesco, doing? I'd doubt that they are relying on such “cost cutting” measures.

What should you do? You need to look at your value-adding processes — how can you add more value for the customer and how can you take out waste in the process? The Lean approach would involve partnering with your employees, truly treating them like assets, and working with them to find ways to reduce costs and improve service and sales.

I'm sure their “leaders” are sharing the pain? Let's look attheir compensation:

Philip J. Schoonover, CEO: Salary $975,000, total comp $8,520,000

Doing the math, if you have 3400 employees and find new employees making $3/hour less (my guesstimate), that adds up to $21,216,000 over the course of a year (40 hours and 52 weeks).

I'm having trouble finding the public comp numbers for other execs (the google search for the company's 2006 annual report leads to a dead link instead of a pdf). But it seems to reasonable to think the company could save as much money by cutting executive pay. But, then, we'd be punishing the wrong people, eh?

If you find the comp numbers for the rest of the top 5 executives, post it here, we'll see if adds up to $21M.

Actually, from the Baltimore Sun piece:

Circuit City said it let go of workers who were making 51 cents or more an hour above what the company had set as market wages.

So I think my goal of saving $3 an hour is probably wildly optimistic, then.

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  1. Anonymous says

    I like your ‘death spiral – race to the bottom’ comment. Maybe we need to start a ‘Darwin Award for Business’ category. Setup some guidelines like worst management decsion, worst marketing decision.

    Rumor has it BB did the same thing last year but did not go public with it?

    Regardless the stockmarket did not think this was a great idea either. Price went down a couple percent.

  2. Mark Graban says

    The Circuit City CEO was fired yesterday:


    Maybe they can rehire him at a lower salary, ala the associates?

  3. Mark Graban says

    Not to dance on their grave, but Circuit City is more — or they are shutting down in the U.S., anyway.

    34,000 will lose their jobs, sadly.

    The executives will blame the economy.

    “Due to challenges to our business and the continued bleak economic environment, Circuit City is going out of business and the company’s assets will be liquidated to pay off creditors.”

    Maybe it was also due to bad management.

  4. […] Traditional cost cutting is a death spiral – case in point, the now bankrupt Borders bookstore chain that was scrimping on inventory and store staffing… angering the customers they had left, leading, I’m sure, to more cost cutting. Circuit City went through the same death spiral, as I blogged about in 2007. […]

  5. […] article caught my eye, since I remembered blogging about Circuit City last year when the company, which claimed “associates are our greatest asset,” proved quite the […]

  6. […] those existed. Now, they’re somewhat in the Lean Blog “Retail Hall of Shame” with Circuit City, Radio Shack, and Ann Taylor […]

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