When do layoffs mean lower TV sales?
Apparently, when you're Circuit City. The company recently revised its projections for the first half of its fiscal year, based on poor sales of flat-panel and projection televisions. Partially due to the disappointing sales figures, the company expects a loss of $80 to $90 million in the first quarter of fiscal 2008. And analysts say that those bad sales figures can be blamed in part on the company's decision to fire its highest-paid workers.
In March, Circuit City announced that it was laying off 3,400 employees, 60 percent of whom were in-store sales employees, and replacing them with lower-paid employees in hopes of perking up its bottom line. Although layoffs used to be seen as a way to make Wall Street happy, this time the move seems to have backfired. Analysts from Deutsche Bank and Jefferies & Co. said that by firing its highest-paid employees, Circuit City most likely fired most of its best-trained employees, enabling the company's competition to take market share from Circuit City based on stronger customer service.
Especially for expensive items like projection or flat-panel televisions, said the analysts, informed employees are essential to close sales. "I think even though sales were soft in March, this is clearly why April sales were worse. They were replaced with less knowledgeable associates," said Tim Allen, an analyst with Jefferies & Co., told The Washington Post.