1. Discuss your opinion regarding the merits of Circuit City’s labor cost-cutting strategy.

How might the strategy affect the following competitive issues: ability to cut prices on goods sold, customer service, and recruitment and retention of retail employees? InMarch 2007, the second largest retail consumer electronics company, Circuit City, announced a plan to terminate 3,400 employees out of an in-store work force of 40,000 (nine percent)

in order to cut labor costs. The company stated the dismissals had nothing to do with individual employees’

job performance but rather were simply designed to replace workers earning top pay rates with new employees who would be hired for less to do the same job. A terminated employee stated in an interview that he was told any employee who earned more than 51 cents above the pay rate established for their job at their store’s location would be subject to termination. Terminated employees could reapply for any available positions after ten weeks. The terminations, along with other cost cutting actions, are expected to save the company $110 million in fiscal year 2008 and $140 million per year starting in fiscal 2009. Management believes the plan will enable Circuit City to compete better with rival firms such as Best Buy and RadioShack. Circuit City reported sales fell 4.3 percent in the quarter ending May 31, 2007, and sales at stores open at least one year fell 5.6 percent during the same time period.