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Best Buy only owned up to "staffing changes," but according to a Wall Street Journal article, an analyst at brokerage firm Sanford Bernstein contends that Best Buy's reorganization means up to 8,000 senior sales people are basically being demoted to positions that could slash their paychecks in half. According to Sanford Bernstein, the company may also reduce the number of assistant store managers, which could result in cutting about 1,000 salaried workers.
A spokeswoman for Best Buy refuted the idea that it was going down the same path as Circuit City, according to the WSJ article. However, demotions, slashed pay, and layoffs do sound eerily similar, don't they?
Cutting costs is common in today's ugly economic climate, and Best Buy's no stranger to it; last December, the company said it was offering voluntary severance packages to employees, which struck me as a kinder method than most retailers would use to handle such a necessity. However, it did say at that time that involuntary layoffs could still occur in the future.
One of the things I've always liked about Best Buy was its innovative strategy, which included valuing rank-and-file employees, illustrated by innovations like its TagTrade idea. Meanwhile, Circuit City's now-infamous decision to lay off experienced employees and hire cheaper workers without a doubt helped sound the death knell for its struggling business.
It might be cynical, but I can't help but worry that now that a major rival's dead, Best Buy might respond as if it has a bit more leeway to make moves employees won't like, customers won't like (if it means getting poor service), and shareholders certainly shouldn't like. Let's hope not -- the innovative spirit I mentioned above helps differentiate Best Buy both from electronics specialist RadioShack (NYSE: RSH ) as well as megastores such as Wal-Mart (NYSE: WMT ) , Costco (Nasdaq: COST ) , and Target (NYSE: TGT ) .
So, if Best Buy's cost-cutting results in employee-unfriendly moves that destroy morale, I'd be a lot more leery of the stock. Circuit City's demise includes a strong lesson for businesses on how there's a difference between cutting fat and cutting bone. I've been bullish on Best Buy in the past, based on my belief that it will survive our major economic downturn. But part of my rationale was that it wasn't like everybody else in the retail space -- especially not its dead rival. Best Buy shareholders should watch this development very carefully, since losing competitive advantage could make them losers as well
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