Summary
At a time when technology in TV's, home theatre, CPU's, printers, cell phones and personal electronics as at optimum levels and consumer demand for having well-trained, savvy associates is an absolute prerequisite for assisting the buying decision, Circuit City has gone in the opposite direction through mass layoffs of experienced staff with replacement by lower paid, less tech-savvy staff. Implications of such a move include: 1)Risk of further sales declines since inexperienced staff will struggle with closing sales and suggesting high margin add-ons. 2)Customer alienation-with fewer sales people on the salesfloor coupled with a diminished technology knowledge base, customers who are time-compressed and non-technical are more prone to moving their decision to buy at a store with comparable prices, favorable selection, and superior service--you guessed it--Best Buy! 3)The 110 million in expense line savings will ultimately pale by comparison when topline sales shrink proportionately
Analysis
Although cost cutting moves are an essential element of a return to profitability, expense austerity without a long term, topline revenue/market share growth strategy can easily become a self-fulfilling prophecy of doom for any retailer who might forget that future growth cannot rely on moving forward by going backward in terms of staffing(branding, image, negative customer experience) created by less than world class service. Keeping in mind that the consumer of today absolutely demands prompt as well as knowledgeable sales staff not as a brand differentiator, but rather as a baseline expectation and "ante" into the game within the sector, the salary and benefit cuts come at a time that could further enhance vulnerability to Best Buy where staffing and "Geek squad" tech-savvy is in abundance. Given that price , selection, store layout, real estate locations, et al, do not separate Circuit City from competition in the CE sector but simply puts them on an equal playing field with the likes of Best Buy and the 3 players in the Office Supply sector, the strategy of removing experienced help from the stores places them at greater risk of losing share and revenues. Companes such as Staples and OfficeMax have actually invested payroll hours into their Consumer Electronics departments, knowing well the upside of technically trained associates who will close the sale, and also leverage the payroll investment by selling all of the high margin add-ons like cables, routers, connectivity devices, ink, paper, surge protectors and extended service contracts to build the market basket as well as protect the gross margin since the hardware sale is usually the lowest margin part of the POS ring. If Circuit City can pull this off successfully and gain share with less experienced help, then Best Buy, OfficeMax and Staples had better take a close look at their ROI and sales per man hour productivity; someone out there is right in terms of training and staffing; unfortunately, I would not bet on Circuit City as the retailer with the correct business model in a retail world where service and customer centrism is vital. The first half of the year has already proven to be a somewhat tough economy in terms of consumer, small and midsize business spending. With the all-important Back to School and Holiday seasons on the near horizon, Circuit City is definitely at a disadvantage unless they pull off one heck of a marketing strategy that drives footsteps into the stores. Service will probably be better on their website than in retail stores.
