Hey everyone! Remember THIS bit of news from last March?
A new plan for layoffs at the Circuit City electronics retailer is openly targeting better-paid workers, risking a public backlash by implying that its wages are as subject to discounts as its flat-screen TVs.
The electronics retailer, facing larger competitors and falling sales, said Wednesday that it would lay off about 3,400 store workers — immediately — and replace them with lower-paid new hires as soon as possible.
Well, it seems that didn't turn out so well for them after all. The results below the fold...
Oh, at first, Wall Street was ga-ga over the news. Yes, this was opening a bold new avenue for businesses to cut their costs and increase their profits. Just get rid of long-time employees whose several years of annual raises are such a drag on profits, and replace them with new employees at minimum wage. Hey, it's only retail, right? It's not like experience means anything.
Here is how Wall Street acted right after the announcement:
Circuit City shares were up in Wednesday afternoon trading after the company announced layoffs and a possible sale of its Canadian unit InterTAN.
Shares of Circuit City were up 37 cents, or 2.0%, to $19.29, in afternoon trading, after the company said Wednesday that it would fire around 3,400 employees. Although the company will rehire new workers for the positions, they will be paid a lower wage.
Well, Circuit City just announced its 3rd Quarter sales, and guess what?
Circuit City said its third-quarter loss ballooned to $207.3 million, or $1.26 a share, from $20.4 million, or 12 cents a share, a year ago. Excluding tax-related accounting items, the electronics retailer would have lost 64 cents a share in the latest period. On that basis, analysts had expected a loss of 31 cents a share, according to Thomson Financial.
Sales slipped 3 percent, to $2.96 billion, with same-store sales, or sales at stores open at least a year, falling 5.6 percent. Such sales are considered a key indicator of a retailer's health. It was the company's fifth consecutive quarterly loss and its third straight revenue decline.
Wall Street wasn't pleased, as Circuit City shares dropped 29% after the announcement.
What could possibly account for such a drop in sales? Well, here is how Circuit City CEO Philip Schoonover expressed it:
"Clearly, we are very disappointed," Chief Executive Philip Schoonover told analysts during a conference call. He said the company underestimated the financial impact of cost-saving initiatives on sales.
Umm, perhaps you can clarify that a bit, Phillip:
The loss was driven by lower extended-warranty sales and business interruptions the company attributed to restructuring efforts.
The chief executive, Philip J. Schoonover, said Circuit City underestimated the impact cost-saving moves would have on sales. "Our current focus is to rebuild our selling culture," he said.
Once again, please?
he company said a sharp fall in sales of product warranties, services and other product add-ons contributed to a loss of $207.3m (£104.5m), or $1.26 a share.
Wall Street analysts were expecting a loss of about 31 cents per share.
Philip Schoonover, chief executive, said the problems at the retailer had been largely "self induced", as efforts to reduce costs, including the dismissal of 3,000 experienced staff earlier this year, affected customers’ experiences of shopping at the store.
Analysts profess to be mystified:
Analysts were clearly disappointed. The results were "absolutely astonishing to us," said Christopher Horvers, an analyst at Bear Stearns & Co. "If they don't turn around in the fourth quarter, it will raise the likelihood that this company goes down a dark path."
Umm, methinks you have that backwards, Mr. Horvers. The company already went down a dark path, and that is why sales plummeted. Without experienced and properly compensated salespeople, customers don't get good service, and they stop shopping there. Simple as that.
I'd like to think big business has learned a lesson, but I doubt it.