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Citing Undue Pay, Circuit City Cuts 3,400 Jobs

3 Apr, 2007 By: Erik Gruenwedel

The hits keep coming for No. 2 consumer electronics retailerCircuit City Stores Inc.

The Richmond Va.-based retailer, which operates 643 retail stores and superstores domestically and more than 800 retail stores and dealer outlets in Canada, announced last week the termination of 3,400 hourly employees.

The cuts to selling, general and administrative (SG&A) overhead come as Circuit City attempts to rebound from a third quarter that saw the retailer post a $16 million loss due largely to shrinking margins with flat panel HDTV units.

The staffers, who made at least 51 cents per hour above the market-based salary range for their positions, were given severance and allowed to reapply for their positions at lower hourly rates after 10 days, according to a company spokesperson.

“Circuit City pays competitive salaries in markets where we operate stores,” said the spokesperson. “Wages are constricted by market conditions so we can offer consumer products and prices consumers expect.”

Circuit City said the restructuring would contribute $145 million in pre-tax expenses to fiscal year 2007, which ended Feb. 28.

“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 Schoonover, chairman, president and CEO of Circuit City. “These actions represent the execution phase of the work initiated this winter to accelerate Circuit City's transformation.”

The CEO said he expected the cuts to deliver improvements in the chain's SG&A expense rate while maintaining appropriate investments in its key strategic initiatives such as digital home services, multichannel and home entertainment.

Don't expect much improvement April 4 when Circuit City announces its fourth quarter results. The chain said domestic same-store sales grew 6%, down from 7% to 8% projections.

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