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May 3, 2007
Circuit City fired 3,400 of its highest-paid store employees in March, saying it needed to hire cheaper workers to shore up its bottom line. Now, the Richmond, Va., electronics retailer says it expects to post a first-quarter loss next month, and analysts are blaming the job cuts.
The company, which on Monday also revised its outlook for the first half of its fiscal year ending Feb. 29, 2008, cited poor sales of large flat-panel and projection televisions. Analysts said Circuit City had cast off some of its most experienced and successful people and was losing business to competitors who have better-trained employees.
"I think even though sales were soft in March, this is clearly why April sales were worse. They were replaced with less knowledgeable associates," said Tim Allen, an analyst with Jeffries & Co.
In particular, the televisions showing disappointing results are "intensive sales," requiring more-informed employees, Allen said. "It's a big-ticket purchase for somebody. And if they feel like they're not getting the right advice or are being misled by someone who doesn't know, it would be definitely frustrating. They will take their business elsewhere."
Circuit City said in March that sales would be volatile for the next several months as the company adjusts to the changes. But Tuesday the company said it was too early to tell whether the dismissals have caused any of the falloff in April sales.
"We will continue to monitor that," said Bill Cimino, a company spokesman. "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.
About 60 percent of the people let go were in store sales positions. Each of the company's almost 650 U.S. stores have about 50 salespeople per store, he said.
Cimino said Circuit City attributes the sales picture to a combination of economics and the company's poor forecasting and planning. "That's what we're working on right now," he said.
At the same time, however, the company has initiatives underway to keep employees on the sales floor, Cimino said. For one, employees will be directed to confine their attention to customers when stores are open. The other duties are to be performed after hours, when customers aren't in need of help, he said.
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