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May 4, 2007
Workforce really does matter
I've written a few time about the decision by Circuit City to fire its' more experienced (and more expensive) workers (see here, here and here). But up to now, it has all been speculative. Well, the first results are in and, at the Washington Post reports, Circuit City's Job Cuts Backfiring, Analysts Say:
Circuit City fired 3,400 of its highest-paid store employees in March, saying it needed to hire cheaper workers to shore up its bottom line. Now, the Richmond electronics retailer says it expects to post a first-quarter loss next month, and analysts are blaming the job cuts.
The company, which on Monday also revised its outlook for the first half of its fiscal year ending Feb. 29, 2008, cited poor sales of large flat-panel and projection televisions. Analysts said Circuit City had cast off some of its most experienced and successful people and was losing business to competitors who have better-trained employees.
"I think even though sales were soft in March, this is clearly why April sales were worse. They were replaced with less knowledgeable associates," said Tim Allen, an analyst with Jefferies & Co.
. . .
Although the impact on Circuit City was "sudden and severe," there could be other reasons for slower television sales, including a "softening of consumer spending," Mike Baker, a research analyst with Deutsche Bank wrote in a report released yesterday. Best Buy is also "likely not immune," he wrote.
However, Baker also said Circuit City's situation is mostly a result of its loss of informed workers. Best Buy "will fare better because of market share gains driven by weakening customer service at Circuit City," he wrote. "We believe that Circuit City's store labor change . . . likely has had a worse than expected impact on Circuit City's service levels and has enabled [Best Buy] to take share."
Circuit City's prices and return policies are comparable to those of its competition, so what's left is the sales experience, said Samuel Culbert, professor of human resources and organization at the University of California at Los Angeles. "There is nothing more important than relationships in commerce."
Turns out that workforce skills do matter.
Maybe other companies will now think twice about the automatic assumption that firing workers improves the bottom-line.
Posted by Ken Jarboe at May 4, 2007 8:51 AM
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