Short-sighted move short circuits (Editor’s notes)

Retail store's stock plummeted after firing 3,400 'high-paid' staff
By Todd Humber
|Canadian HR Reporter|Last Updated: 03/22/2013

Human resource professionals don’t argue for better compensation for workers because it’s a nice thing to do. They don’t advocate for training, health and safety and recognition just to drain corporate funds. They do it because it makes good business sense — the fact it is the right thing to do is just gravy.

Business executives who rail against “touchy-feely” HR issues, who view the profession with a disdainful eye, need only look at Circuit City, a Richmond, Va.-based electronics retailer, to see what happens to the bottom line when good HR practices are abandoned.

Back in April 2007, I wrote a cautionary tale about Circuit City’s plan to get rid of 3,400 of its “high-paid” staff in a bid to cut costs. Well, the results are in, and the news isn’t good.

Here’s a number that’ll catch the attention of corporate leaders — 80 per cent. That’s how much lower Circuit City’s stock price is today than it was the day before it made the public announcement about its grand vision to slash costs, according to the Associated Press. A quick look at the stock ticker showed the stock trading at $4.90 US on the morning of Feb. 11, far below its 52-week high of $22.02 US.

The reason for the failure is pretty obvious to HR professionals and was summed up nicely by Peter Cohan, a Massachusetts-based management consultant: “They (executives) were so focused on cutting costs that they failed to take into account the real value of good salespeople.”

The sales figures complete the story. Over the holidays, the retailer’s same-store sales plunged 11.4 per cent from 2006. This at a time when electronics sales — from flat-screen televisions to digital cameras — are booming. In the retail sector, customer service is everything. And customers obviously didn’t like what they saw. They walked into stores and probably found an inexperienced, underpaid and apathetic workforce.

And Circuit City’s very public, candid announcement it was cutting wages and getting rid of staff also didn’t help. After all, it’s not like these workers were pulling in six figures. By most estimates, the wages of those who lost their jobs were in the $14 US-per-hour category, meaning they were pulling in a modest $29,000 US per year. The new wages were reportedly about $9 US an hour — about $19,000 US per year. The average person could have felt a lot of sympathy for these workers, and voted with their feet and wallets.

Circuit City is now focusing on training its 40,000 workers. It will have to spend countless hours — and dollars — to get its staff up to par. And if it doesn’t do something about pay, those trained workers will leave for greener pastures.

This isn’t a business case HR should be reading. It already knows failing to recognize and reward staff for their expertise, knowledge and loyalty is a recipe for failure. But it is a case the profession should be trumpeting.

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