|"Only dull people are brilliant at breakfast"
|"The liberal soul shall be made fat, and he that watereth, shall be watered also himself."
-- Proverbs 11:25
Circuit City Stores, Inc. (NYSE: CC) has really crossed the line with its latest cost cutting move. By chopping 3,400 of its most highly paid retail staffers, the country's second-biggest electronics retailer is making a losing bet that the drop in sales resulting from canning its best sales people will be more than offset by the lower pay that it gives to the less capable replacements.
Comments I received on yesterday's post suggest that Circuit City made the wrong call. Here's an example:
"I was one of the people laid off and I can guarantee that the service will decline by leaps and bounds. The seven of us that were laid off at the CC I worked at, ran the store. All of us had been there 5+ years. Circuit City states they gave us severance- 4-8 weeks pay doesn't go very far. One of the guys that was laid off had been with CC for 20+ years and was number one in the company in selling warranty. They laid off the best people!!! It just doesn't make sense. It is crazy that they think a 5 or 10 year employee could be replaced with an untrained $8 hour employee. Good Luck with that CC. I'll be at Best Buy....with all of my former Circuit City customers!"
Sour grapes? Maybe. But this comment reveals a basic truth about business which Circuit City seems to have completely ignored. It's expensive to spend money on advertising to attract new customers to replace existing customers who bolt to competitors due to lousy service. By contrast, it's far more profitable to get repeat business from your existing customers by giving them great value and super service.
But the key to doing that successfully is to attract and motivate the best people. If employees are happy, they'll give customers better service. And customers will keep coming back for more. As a result, the business will make more money since it doesn't need to keep spending to attract new customers.