Circuit City firings blow public's fuse

When Carole Fisher read the news in March that Circuit City fired 3,400 employees so it could replace them with lower-paid workers, she knew one thing: She would never shop there again.

"They weren't going after the big guys. They were going after the little guys again," said Fisher, 71, of Ellicott City, Md. "It seems to me the little guy gets screwed pretty routinely when a company is having trouble."

Although she is replacing her kitchen television, she'll shop elsewhere. The boycott will be her way of trying to fix what she thinks is wrong with corporate America.

From the company's viewpoint, that's what it was trying to do: fix a problem. Circuit City had been in a holiday price war with Wal-Mart and Best Buy over flat-panel televisions. Its bottom line was suffering.

Bill Cimino, Circuit City spokesman, said the company was trying to be candid. Such firings are not uncommon in retail, he said, but Circuit City was "honest and open about what we did. And we were that way with our employees and felt it was appropriate to be that way with everyone else."

The company was trying to keep to a defined pay scale, but some managers had given workers raises that moved them beyond the limits. That had to be corrected, he said, because the company had to compete with other chains on wages and prices.

The laid-off workers received severance and a chance to reapply for their former jobs, at lower pay, after a 10-week delay, the company said.

Circuit City said it expected the firings to reduce expenses by $110 million in fiscal 2008 and $140 million a year starting in fiscal 2009.

"We could have closed a large number of stores that could have impacted thousands of more associates," Cimino said. "We did this to protect as many people as we could."

But many people, hearing often of corporate greed and crime, are looking at business skeptically. Last week, after Circuit City said it would report a first-quarter loss because of low sales of big-ticket items, analysts said sales might have been harmed by customer reaction to less-informed salespeople replacing more experienced ones.

Cimino, however, said store traffic has not dropped since the layoffs, although sales of more expensive items have. That would point to economic reasons for a slowdown, rather than consumer discontent, he said.

"I think consumers are becoming more and more outraged at the internal dynamics of providers of service to them," said Kenneth Siegel, an organizational psychologist in Los Angeles. "From boardroom scandals at Hewlett-Packard to Wal-Mart's union-bashing efforts, companies need to be careful with what they project into their markets. Very little goes unnoticed, and a lot produce strong feelings."

That's how Devona Wyant, 61, of Lincolnton, N.C., said she viewed the Circuit City firings.

"The thing that bothered me is that the American work ethic in the past has been you're loyal to your employer, give them your best, you start working your way up the ladder," she said. "It seemed as though they are being punished for doing this."

She and the 15 people who are part of a neighborhood online news-discussion group said they would no longer shop at Circuit City. "The consensus generally was: 'I don't see the reason why I need to go there anymore,' " Wyant said.

Brooks Holtom, assistant professor of management at the McDonough School of Business at Georgetown University, said companies often "overlook unintended consequences" of reductions and cost cuts.

"I would hope someone with a strategic view of 'How do we create value in this enterprise?' would have raised their hand and said, 'How might this be perceived in the marketplace?' or 'Is this what we want to do to customer service?' " he said.

Material from The Seattle Times archive is included in this report.