Circuit City Starting New Trend?
Circuit City, the nation's number 2 consumer electronic retailer behind Best Buy recently laid off 3,500 employees. The reason for this was that many of these employees were considered entry level workers. They company plans to hire new workers at lower costs or rehire the laid off workers back at a lower salary. This might not seem like a good idea but it actually helped Circuit City boost its stock by 3 points the day after it occurred. "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," Philip J. Schoonover, Circuit City's chief executive, said in a statement. While this might seem a little risky, it may be starting a trend. Other companies have seen how Circuit City was able to cut back on workers, maintain product output and even benefit more from it. Will this style of laying off long time loyal employees for young cheaper labor rub off on other companies?
8 comments:
What I don't understand is if the people they lay off are already entry level, how are they going to hire them back for less salary? There's a minimum right?
The main objective of any business is to maximize profits. Obviously Circuit City is doing something right if their profits are increasing. If they are paying workers more than they would have to pay someone else to do the same job, it only makes sense to make the cuts the corporation is making. It sounds like Circuit city is decreasing their variable costs without decreasing their output. By the “Ross Perot” equation, it is evident that this change decreases marginal cost and therefore increases profit. If Circuit City’s situation is really working out this way, the cuts are the logical thing to do. Problems will arise if the replacement labor causes production to suffer.
I agree if the goal is to maximize profits and the profits are increasing then Circuit City must be doing something right. I would be cautious that those workers who are fired and then rehired for lower wages may leave and look for a job paying the current market price for some other company.
Economically, this move is wise. Their goal, presumably, is to maximize profits. While this step did help, I have to wonder about those workers who are laid off. Will they (and their famileis and friends) be so eager to patronize this business?
The maximizing of profits has definately taken place here while I am not for the laying off of workers it was a smart and cunning move because now Circuit City's overall costs are less. One could argue though that if these entry level workers keep getting laid off and then paid lower wages then how is it even a possibility for them to make it past entry level in the workforce.
Higher profits, lower labor costs, what's wrong with this picture? Maybe this move will help Circuit City become the # 1 eletronic retailer.
If Circuit City can lay off workers and maintain production perhaps they are over staffed. If they are hiring younger people for entry level positions and cheap labor then perhaps those jobs aren't really necessary. Being efficient is a main way to cut costs, and if they have positions that can be sustained by lower wages they could possibly just use the higher paid labor to take care of those jobs as well. Seems to me they are working on efficiency which is never a bad move.
Its sad to see this comapny lay off their "entry level employees" because they could teach them to become assets to their company. I do like the idea however that they are trying to become a more knowlegeable staff.
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