Jobs The USA Way: Reapply for your Circuit City position at half pay  :  Published April  2007 All Rights Reserved


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 buyback plan.

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 stockholder value.

"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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