I wanted to write something about the inanity of the layoffs at Circuit City, but I just couldn't add anything about the arrogance of the company's executives that they didn't demonstrate better themselves--or than what was confirmed by the continuing decline of their share prices since their move. I'll never shop there again.
From: “It’s the Workforce, Stupid” by James Surowiecki. New Yorker April 30, 2007
In the nineteen-nineties… a new term appeared: the “seven-per-cent rule.” …when a company announces major layoffs, its stock price jumps seven per cent… Many academics have looked at how layoffs affect stock prices, and they’ve found that the seven-per-cent rule is bunk. Instead of rising sharply, the stock of companies that trim their workforces is likely to fall…
Downsizing has become less a response to disaster than a default business strategy, part of an inexorable drive to cut costs. That’s why Circuit City can proclaim, “Our associates are our greatest assets,” and then lay off veteran salespeople because they earn fifty-one cents an hour too much. There’s nothing wrong with costcutting, and in any dynamic economy layoffs will be necessary. The problem is that too many companies today define workers solely in terms of how much they cost, rather than how much value they create.
From: “Circuit City Under Fire” by Andrew R. McIlvaine. Human Resource Executive April 9, 2007
Retail consultants say Circuit City's recent firing of 3,400 of its most experienced store associates is a poor business move based on short-term thinking…
George Whalin, president and CEO of Retail Management Consultants in San Marcos, Calif., says the Circuit City firings were handled poorly and represented short-term thinking. "Circuit City sells products -- consumer electronics -- that require knowledgeable people to advise customers; it's not a self-service business," he says. "True, many people do their research online these days, but a fair number still want to talk to someone who truly knows what they're talking about."
Andrea Waltz, co-founder of Courage Crafters, a retailing consultancy based in Vancouver, Wash., says she was "surprised" to hear about the move. However, she adds, it's emblematic of short-term thinking among many retailers today. "We see retailers constantly leaning to technology-based self-service for their customers, which is great, but they're also constantly undermining the 'floor focus,' the customer experience, and we think that's a bad idea," she says.
Retailers who approach their businesses from a strict cost-cutting perspective could be setting themselves up for long-term failure by neglecting the skilled and experienced salespeople who can be a key differentiator in customer service, say Whalin and Waltz.