Circuit City, the US consumer electronics retailer, has recently announced that it would cut around 8 percent of its US store staff and replace them with cheaper hires, in a move that underscores the anxiety facing US retailers as they struggle to keep down staffing costs. The retailer has argued that the majority of the 3,400 employees let go ‘were paid well above the market-based salary range for their job’ and now they would be replaced by new workers ‘compensated at the current market range for the job’.
The laid-off workers constituting around 8 percent of the company’s total work force would get a separation package and a chance to reapply for their former jobs, though at lower pay, after a 10-week delay, informed the firm. Though even other companies adopted new strategy to keep higher wages in control such as Caterpillar Inc., have introduced two-tiered wage systems, where newer workers were paid less, but firing workers and offering to rehire them at a lower wage is extremely rare.
Analysts and experts are of the view that the move is an uncertain experiment that could backfire for the chain. The move is loaded with risks as morale could descend and customers could avoid the stores. They further suggested that customer service is one of the few ways Circuit City can tackle competitors that include Wal-Mart Stores Inc.
In the mean time, the company said in a statement, ‘the moves will reduce 2008 expenses by $110 million and trim $140 million in annual spending in 2009. Sales may be volatile during the first half of this fiscal year as new sales people learn their jobs’. Circuit City, along with Best Buy, was compelled to slice TV prices during the 2006 holiday season after other leading retail stores began selling flat panels for less.
The cost-cutting strategy came into effect just a week before Circuit City is scheduled to report is fourth-quarter results, which will contain the holiday season. It has already said sales for the quarter missed targets, rising 8 per cent instead of the 10 per cent forecast.
