Circuit City laying off 3,400 store workers

NEW YORK -- A new plan for layoffs at Circuit City 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.

The laid-off workers, about 8 percent of the company's total work force, would get a severance package and a chance to reapply for their former jobs, at lower pay, after a 10-week delay, the company said.

Analysts and economists said the move is an uncertain experiment that could backfire for the chain. The risks: Morale could sink and customers could avoid the stores. Also, knowledgeable customer service is one of the few ways Circuit City can tackle competitors that include Wal-Mart Stores Inc., they say.

"This strategy strikes me as being quite cold," said Bernard Baumohl, executive director of The Economic Outlook Group. "I don't think it's in the best interest of Circuit City as a whole."

While other companies, such as Caterpillar Inc., have introduced two-tiered wage systems, where newer workers make less, firing workers and offering to rehire them at a lower wage is very rare.

"I don't think you're going to find too many examples," of this, said Ken Goldstein, labor economist for the Conference Board, a business research group. "That certainly has not been a trend we've seen."

Circuit City, the nation's No. 2 consumer electronics retailer behind Best Buy Co. Inc., says the workers being laid off were earning "well above the market-based salary range for their role." They will be replaced with employees who will be paid at the current market range, the company said in a news release.

"We haven't done something called (a) wage management initiative before," company spokesman Jim Babb said. "All companies at one time or another need to go through and make sure their cost structure works with market conditions."

Customers at the store questioned the move.

"I don't think it's fair," said Hamilton Smith, an 88-year-old retired federal worker who had just bought some batteries at Circuit City. "You need to give people a living, working wage."

He said he would think twice before shopping at the company's stores again.

Circuit City's cuts come at a time when other retailers are trying to put more knowledgeable workers on store floors. Home Depot Inc., whose new chief executive is struggling to reignite sales growth at its stores, said it has raised pay to attract skilled tradespeople, such as carpenters and electricians.

The Home Depot is adding 15,000 jobs this year, spokesman Jerry Shields said.

Circuit City's move, by contrast, "shows they're positioning for another tough year," said Timothy Allen, a Jefferies & Company Inc. retail analyst. Not only will service levels at the store suffer, he said, but "you've lost 3,400 customers/employees."