Circuit City Blew It

Last Updated Apr 2, 2007 7:12 PM EDT

Circuit City executives missed a huge opportunity last week to prove that they too are willing to make sacrifices after they axed 3,400 of its highest-paid employees. If they need to save cash so badly, CEO Philip J. Schoonover could have given back some of his salary or bonus from last year. According to the Washington Post, Schoonover received a salary of $716,346 and a $704,700 bonus last year. And he has long-term compensation of $3 million in stock awards and $340,000 in underlying options. Sure the gesture would be symbolic, but it would've sent a positive message to his rank and file whose morale level probably isn't soaring right now. Too bad the MSM fell asleep at the wheel, and the news of the layoffs dropped from the headlines the next day. 

So what kind of impact will the cuts have on Circuit City? Well, it probably won't be good. Its customer service is already shoddy, and it ranks last among major retailers in the American Customer Satisfaction Index. Even behind (gasp) Home Depot. Here are some thoughts from Peter Cohen from AOL Money and Finance on the job cuts:

"It's expensive to spend money on advertising to attract new customers to replace existing customers who bolt to competitors due to lousy service. By contrast, it's far more profitable to get repeat business from your existing customers by giving them great value and super service. But the key to doing that successfully is to attract and motivate the best people. If employees are happy, they'll give customers better service...But by driving out its best personnel, Circuit City will lose those people -- and their loyal customers -- to its top-ranked rival Best Buy."
So, the bottom line is that Circuit City will save some money in the short term, but it may end up a loser in the ultra-competitive electronic retail industry due its short sighted cuts.