Circuit City Cuts Costs, Corners

Nice going, Circuit City (NYSE: CC  ) . You may have just axed some of your top store associates -- and deflated the aspirations of the rest.

The consumer-electronics superstore's move to fire some of its pricier employees makes sense on the surface. The company announced that it was letting go 3,400 unit-level associates who were earning salaries well above the market average. They will be replaced by more nominally salaried hires.

So make a note to call your slacker nephew and let him know that Circuit City is hiring. But am I the only one worried about the implications here? Nobody gets their pay bumped higher because they're incompetent. Whether they're seasoned associates who know the stores inside out, or employees whose hard work has helped them get aggressively promoted, they're paid well for a reason. How many high-def DVD players will you be able to sell with that green associate who doesn't know the difference between Blu-ray and HD-DVD?

If I can make the obvious joke, you're a real firedog, Circuit City. It's not just that you're letting go what may be some of your productive associates. What kind of message does this send to your remaining hires? Don't overachieve. Lay low. Do just enough to stay with the pack.

I'm already dreading my next trip to Circuit City, when I ask for help and everyone runs the other way, as if I just pulled the pin on a grenade.

To be fair, Circuit City isn't just whittling away on the front line. It's also eliminating about 130 corporate jobs by outsourcing its IT infrastructure needs to IBM (NYSE: IBM  ) . Last month, it announced a regional-level realignment that also trimmed some fat.

I get it, C.C. Consumer electronics isn't always a cakewalk. Best Buy (NYSE: BBY  ) is eating your lunch, and now companies like Wal-Mart (NYSE: WMT  ) and even Home Depot (NYSE: HD  ) are making an aggressive push in this niche. You have to keep your cost structure in line.

But do you really know what you're doing? You just handed over 3,401 pink slips at the store level. Yes, I said 3,401. You're canning 3,400 store associates, but you're also handing morale its walking papers.

For more on the titans of technology retailing, check out:

Best Buy is a Motley Fool Stock Advisor recommendation. Home Depot and Wal-Mart have been singled out as Inside Value stock picks.

Longtime Fool contributor Rick Munarriz prefers shopping at Best Buy to Circuit City, though he remains a fan of Best Buy blue and Circuit City red. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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