Circuit City’s Cheaper Parts

Circuit City announced Wednesday that it will terminate approximately 3,400 store associates “who were paid well above the market-based salary range for their role.”

In their place, the company has announced its plans to re-fill these positions with workers who are “compensated at the current market range for the job.”

Its plans to hire lower-paid employees to replace the retail associates are simply one part of previously disclosed cost-cutting measures to improve sales and cut expenses.

The Richmond, Virginia-based consumer electronics retailer also announced that it has entered into an agreement with IBM to outsource its information technology infrastructure operations.

Under the seven-year, $775 million agreement, IBM will manage Circuit City‘s data center operations, store support services, e-commerce hosting operations, service desk operations and network, as well as provide desktop support, business systems management, and IT security services.

The company says the arrangement is expected to reduce planned IT expenses by more than 16%.

With this change, the company will slash another 130 Circuit City corporate associates.

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However, the company says approximately 50 will transition to jobs with IBM and remain on-site serving the Circuit City contract. The remaining 80 will be let go.

“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,” chief executive Philip J. Schoonover said in a statement.

He added that, “Unfortunately, a number of associates are directly impacted by the actions, but we are making Circuit City stronger for the long term.”

There are no immediate plans to close U.S.-based stores. In Canada, Circuit City has already closed about 55 stores, with plans to close about 10 more stores through next year.

Circuit City trails Best Buy as the nation’s leading consumer electronics retailer.

Elaine Rigoli has nearly 15 years of experience managing content and community for various B2B and consumer websites. Elaine has written thousands of business and technology articles and has been quoted in The Wall Street Journal and eWeek, among other publications.

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2 Comments on “Circuit City’s Cheaper Parts

  1. My first impressions of CC v. Best Buy were simple: CC’s ads were B&W, and BB’s were in color. One looked cheap and crappy compared to the other, and it’s held up ever since.

    Pinch pennies and only focus on the cost-side, and you come in second place, or worse.

    Naturally the new “market rate” associates are going to be lower quality, which will just drive more business to other outlets. Ironic, since CC sets the “market rate” for electronics retail people in the US, except for that other brand..which is it again?

    That 16% savings on IT will be lost in agility and online is where they should be focused anyhoo….just shooting themselves even more here…

  2. Kudo’s to M. Snyders post – I agree with you that the cost-cutting mentality is the beginning of the inevitable death spiral…lack of investment into their people and on-line process will doom them. I’ve already given up on CC due to the low quality “Slimey” demeanor of their new sales people. Too bad for them, nice for BB and other providers

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