The Bottom Line Affair: Circuit City

Circuit City fired 3,400 employees in March this year. The cause? They were the highest paid. There were a few articles at that time painting the Circuit City career path: Get hired, become excellent performers, get raises to become highly paid, get fired.

This was an effort to “contain costs” so as to bolster the mythical bottom line. If you thought that a layer of upper management got canned, you are not living in the golden age of capitalism.

Here are some excerpts from Washington Post’s article “Circuit City Cuts 3,400 ‘Overpaid’ Workers” by Ylan Q. Mui on March 29, 2007. Peppered with my own comments of course.

Steven Rash, a 24 year old part-timer at Circuit City, Asheville, NC. He made $11.59 an hour and worked 15-20 hours per week. That is $11.59 x 20 (hours per week) x 52 (weeks per year) = $12,053.60. That same article list Circuit City CEO Philip J. Schoonover’s salary of $716,346 and bonus of $704,700. And that is not counting long-term stock awards and options. To reiterate the salaries just so we can see the difference in starker terms:

Steven Rash [Circuit City Employee, fired]: $ 12,053.60
Philip Schoonover [Circuit City CEO, firer]: $ 1,421,046.00

This is not the first time Circuit City is trying this either. It fired all those who were making more than $18 an hour in 2003. The article closes with a quote from one of the fired employees and market reaction to the news, unwittingly providing a commentary on Capitalism 1.0:

“I dedicated seven years to them. Loyalty gets you nothing.”
Shares closed yesterday at $19.23, up 31 cents, or 2 percent.

A quarter later, how is Circuit City doing?

Here is today’s Washington Post article “Circuit City’s Job Cuts Backfiring, Analysts Say” by Amy Joyce, May 2, 2007

Circuit City is reporting first-quarter loss, pointing to poor sales in items like flat-panel televisions. Analysts are pointing out that laying off experienced and informed workers whose guidance the customers look to when making purchase decisions would be counter productive to sales, especially when it involves big-ticket electronics like the aforementioned flat-panel TVs. Circuit City’s prices and return policies are comparable to its competitors like Best Buy. The only remaining differentiator is the “sales experience,” which happens to be the one factor that Circuit City seems quite determined in its to wish to fail.

The company spokesperson said that they are expecting sales to be volatile for the next several months as everyone “adjusts to the changes.” Market reaction to today’s news?

Circuit City shares fell 5.3 percent, or 93 cents, to $16.52 yesterday.

I guess Circuit City’s CEO had not heard of the recent Home Depot woes?

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