Just under a year ago, Circuit City announced they were going to cut 3,400 experienced workers who were earning $14-$15 per hour and replace them with newbies making around $9/hour. By my own very conservative estimate, the company was positioning itself to save at least $20 million a year. Fast forward to the end of 2007: sales during the do-or-die Holiday season were down over 11% and their stock is down about 80% since the announcement.
I try not to get too bogged down with numbers. First of all, I'm the first one to admit there's a lot about valuation and forecasting that I don't understand. Secondly, since it's not my company, it's not my headache.
Their dismal outlook is not my problem, but those who don't learn from history are doomed to repeat it. Sure, they saved some money, but it cost them big because they are in a service oriented industry and they decided to cut corners on service.
Around the same time Circuit City decided to let inexperienced workers have the run of the place, Best Buy introduces the Geek Squad. Whatever question you have about computers, satellite radio, cell phones, bluetooth, blu-ray, hi-def, or anything else, the Geek Squad sounds like the people you'd want to turn to. Geeks are passionate, geeks have answers. Geeks always know which wire goes into which plug. At the intersection of sales and electronics, you'd be a fool not to employ some geeks, even if they cost a few more dollars an hour.
All is not lost for Circuit City, though. They can take the people they have now and train them into the type of people customers can rely on. My conservative estimate for this type of investment: about $20 million.
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