The Circuit City layoffs

Dear HR Executive:

Make sure your kids get a strong education.

That's the message from last week's largely ignored layoffs at Circuit City. The electronics company laid off 3,400 of its most experienced, and therefore highest paid, salesclerks. This “wage management initiative” -- which replaces the experienced clerks with cheap, inexperienced ones -- will save the company up to $250 million over two years.

The Big Three automakers have recently laid off or bought out 80,000 workers, so the Circuit City numbers seem small. But the implications are huge. A New York Times article earlier this week pointed out that the average 60-year-old worker makes twice as much as a colleague half his age, but his productivity is nowhere near double. For years, companies tolerated that incongruity, providing what amounts to a social safety net for loyal employees. They did so because they could afford to. Circuit City, strangled by ferocious price competition in consumer electronics, decided it could no longer pay the price of experienced salesclerks. No question about it, Circuit City crossed a line in the sand.

If more companies begin practicing "wage management" Circuit City-style -- and you've got to believe they will -- we'll likely see a major trend in retail, manufacturing, distribution and other areas where young, cheap labor can be quickly trained to replace high-priced aging workers.

Bottom line: At the very least, unskilled workers who earn relatively high wages are going to have a rough go in the coming years. The next question is whether the trend will eventually affect skilled workers. Will companies start replacing 60-year-old architects, engineers and computer programmers with inexpensive 25 year olds? The easy answer to that question is probably not. The expertise of skilled workers is much harder to replace. That said, as baby boomers age, I predict that HR executives are going to have to sharpen a key skill in the coming years -- the ability to handle conflict over pay compression for older workers who are all dressed up with nowhere to go ... at the top of their pay grades.

Check out the New York Times article that analyzes the broad implications of the Circuit City layoffs. Fascinating stuff.

And again, mammas don't let your babies grow up to be salesclerks.

Stephen Meyer
B21 Publisher

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Comments

[Mary]

The "wage management initiative," sounds pretty brutal, and in my experience, I am always saddened when the shortcut is taken to accomplish the goal -- let people go. The longer, more difficult process, it to eliminate waste, re-negotiate purchase agreements, ask management to take temporary pay cuts - there are tons of things before letting people go that can be addressed, but seldom are. Now, the other side of the coin...is it possible that younger, cheaper sales staff may be more up-to-date and technically/electronically savvy, and so would be better equipped to answer our dumb questions?

[Stephen Meyer]

In support of Kimberly's previous comment, I think this is a big risk for retailers like Circuit City. I've noticed in the last few years a significant deterioration in "clerk quality" at Home Depot. I'm not sure it has to do with laying off costly older workers, but there's no question they lack the passion they once had to help customers. In coming years the winner in the Home Depot/Lowe's battle will be the one that has the most experienced, committed people roaming the floors and cheerfully answering all our dumb questions.

[Kimberly]

The reason I go to Circuit City is to get detailed information on electronics (something I am not too savvy about)from experienced salespeople before I buy the product. Circuit City will hurt themselves in the long run if they are hiring unexperienced workers and getting rid of the experienced ones. After all, we turn to the stores' salespeople for expert advise on the products the company sells.

[Michael]

Naomi, I think you make a great point. I work for Circuit City but thankfully I am not at my salary cap and still have room to grow. The President and CEO of Circuit City still makes over 8 million a year after bonuses. And his pay was not affected nor any other top executives were affected either. I was looking to move up with Circuit City but I am not so sure now because the company is making so many changes with its management structure, the outlook seems not so stable. I am not excluding Circuit City as a potential career, but I also want to keep my opportunities open.

[Naomi]

What about the CEO's that are making astronomocal salaries and perks? This disparaty will only increase and those low salaried employees will only get to see tv in the workplace.