Jobs The USA Way: Reapply for your Circuit City position at half pay
Electronics giant Circuit City Stores laid off 3,400 sales associates
this past week and is hiring new workers at half the pay scale of the
former employees. Another 130 employees would be let go, with as many
as 50 outsourced to IBM, the company stated. Those who transition to
IBM will undoubtedly be laid off within the year too as that is how IBM
historically operates after absorbing another firm's employees.
Circuit City is considering other options to boost its profits the
company stated 29 March 2007, including selling off its InterTAN Canada
business. The company has lowered its fiscal 2007 sales and earnings
forecasts on the back of unexpectedly poor fourth quarter sales.
One former employee of Manhattan's East 86th Street store told Think & Ask that she was earning
about $28,000 per year as a full-time associate. She hoped to find a
comparable job at a Circuit City competitor, but she found that
retailers were not hiring at the moment. The resident of the
Bronx was going to try electronic stores closer to her own
neighborhood. It should be noted that in order to qualify for an
apartment in Manhattan the household income should be at least $75,000
per year. Unlike other industrial nations, the United States has no
federal regulations protecting employees from random layoff.
Circuit City failed to impress the blogshere after their announcement.
Bloggers for the most part appear to have given Circuit City the thumbs
down for treating workers unfairly. From a sample of 172 blog posts
chosen at random -- 147 posted negative comments about Circuit City,
and only 11 supported the idea of laying-off workers in order to hire
low skill labor. The overwhelming recommendation from bloggers was to
boycott buying goods from Circuit City.
The company forecasts a fourth-quarter pretax expense of $11.7 million
related to employee terminations and $31 million related to other
items. For 2007 Circuit City is projecting 8 percent sales growth and
same-store sales are projected to grow 6 percent.
Circuit City contends that it is not making enough profit. Is Circuit
City in bad shape and on the verge of collapse? No. The retailer
expects net sales to have increased 8 percent to $12.7 billion for its
fiscal year ending 28 February 2007. Sales figures are more than
healthy considering a downturn retail economy. The problem for Circuit
City's executive team was that growth was down 1-2 percent from one
year earlier. Circuit City releases full year results 4 April 2007.
During Circuit City's third quarter, sales grew 7 percent to $3.1
billion, but the retailer was able to ink-out a net loss of $16 million
for the quarter ending 30 November 2006. For nine months ending in
November sales were up 11 percent to $8.6 billion and profits recovered
from a $1.6 million loss to a $400,000. During the third quarter
Circuit City repurchased $20 million of its shares, and so far has
bought back $820 million in shares as part of a $1.2 billion share
While the company can show on paper it is saving money by paying lower
wages...if the "highly paid" workers were at $15 per hour
(approximately $106.1 million per year in wages) with rehiring those
positions at $8 per hour Circuit City saves approximately $50 million
annually in wages (not including taxes or benefits.) The amount of
savings represents about a 1.6 percent of total sales. If Circuit City
increased prices 2 percent, saved the 3,400 jobs, would the consumers
in the United States shun Circuit City for spending 2-cents of every
dollar more -- knowing they were keeping fellow patriots employed at a
slightly higher wage? The blogs at least tend to agree with that theory.
Target the Shareholder
Shareholders of Circuit City loved the idea of laying off workers
however. Circuit City shares climbed 1.9 percent (after the
announcement) to $19.23 per share. Circuit City shares slid though to
close on 30 March 2007 at $18.53 -- or 41 percent off the stock's
52-week high of $31.54 in May 2006.
On 28 March Circuit City announced a series of other changes to improve
"We are taking a number of aggressive actions to improve our cost and
expense structure, which will better position us for improved and
sustainable returns in today's marketplace," said Philip J. Schoonover,
CEO of Circuit City Stores. Schoonover is 47-years-old and earned
approximately $1.45 million in 2006. It is expected his salary
increased by as much as 20 percent for the new fiscal year.
Schoonover expects to deliver improvements to Circuit City's
selling, general, and administrative expense rate while
maintaining appropriate investments to drive strategic initiatives such
as -- digital home services, multi-channel and home entertainment.
The company agreed to outsource its information technology
infrastructure operations to IBM, which would in turn outsource those
jobs to India where IBM is undergoing a hiring binge to replace higher
wage workers in the United States. The arrangement between
Circuit City and IBM would reduce infrastructure expenses by more than
16 percent for the retailer during the life of the contract.
Circuit City previously announced its intention to close approximately
60 international segment stores. The international segment closed 55
stores in February 2007 and expects to close approximately 10
additional stores in the first half of fiscal 2008.
The company expects actions taken in 2007 would reduce consolidated
fiscal 2008 SG&A expenses by approximately $110 million and at
least $140 million annually beginning in fiscal 2009. The fiscal 2008
estimated reduction is approximately $96 million for the domestic
segment and approximately $14 million for the international segment.
The company did not report expectations for supplier price increases.
In March IR Magazine awarded Circuit City with an honorable mention for
having improved investor relations. Circuit City lost out to DuPont for
the category's top prize. Circuit City operates through 643 superstores
and 12 other locations in 158 markets in the United States. The
international segment operates through more than 800 retail stores and
dealer outlets in Canada.
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