More Gibberish From Circuit City

Last month, I wrote both here and in my "Last Word" column  about Circuit City’s curious decision to get rid of some 3,400 workers simply because they were getting paid "well above the market-based salary range for their job," according to the company. It seemed to me at the time that getting rid of your highest-paid, most experienced (and probably best) workers is not the smart way to compete with Best Buy and other strong competitors.

Well, guess what? This week, Circuit City revised its financial outlook for the first half of its fiscal year that ends February 29, 2008, and now the company expects to post a loss for the current quarter, which ends next month. Analysts who follow the company say it is due to business lost to competitors—who have better-trained employees.

Mike Baker, a research analyst with Deutsche Bank, wrote in a report quoted in today’s Washington Post that the "Circuit City situation is mostly a result of its loss of informed workers." Best Buy, he noted, "will fare better because of market share gains driven by weakening customer service at Circuit City. We believe that Circuit City's store labor change ... likely has had a worse than expected impact on Circuit City's service levels and has enabled [Best Buy] to take [market] share."

Circuit City continues to be in denial, telling the Post that it was too early to tell whether the dismissals had caused any of the falloff in April sales. "We will continue to monitor that," a company spokesman told the newspaper. "Only two or three salespersons per store were impacted on average. Others were customer service representatives or warehouse employees," which would point to other factors for the drop in sales, he said.

I feel for a PR flack who is paid to spout such gibberish, but Circuit City management just doesn’t get it. Getting rid of your most experienced and knowledgeable workers, simply because they make too much money, is penny-wise and pound-foolish. In an area where knowledgeable customer service makes a huge competitive difference, Circuit City has embraced a flawed and destructive workforce strategy that simply makes no sense.