Case analysis on:

“circuit city's decision to lay off experienced employees backfires”

SUBMITTED TO :
PRESENTED BY:
DR. AMARESH C NAYAK
TRUPTIPRADA SATAPATHY -2261301227
(238)
BAIVAB KUMAR PANDA- 2261301141 (239)
ANSUMAN PANIGRAHI- 2261301145 (240)
PRATIK KUMAR ROUT- 2261301193 (241)
NIGAMANANDA PATRO- 2261301164 (242)
COMPANY’S PROFILE :

• Location : US California
• Introduced in : 1949
• Deals in : Consumer electronic retailer store
• Second largest consumer electronics chain
SUMMARY :
Circuit City paved its way in the consumer electronics retail market by committing to its Five S’s
operating philosophy –
• Selection
• Savings
• Service
• Satisfaction
• Speed
However, the company fell victim to several poor business decisions in the early 2000’s that
eventually led to the filing of Chapter 11 bankruptcy in 2008 and its closing in 2009. In 2007, Circuit
City, a large U.S. consumer electronics retailer, was facing strong competition from larger rivals such
as Best Buy and Costco, which forced Circuit City’s top management to seek ways to economize on
operational costs. The result was an extraordinary decision to lay off 3,400 people, or about 8 percent
of its work force: not because they were doing a bad job and not because the company was
eliminating their positions, but rather because executives determined that the workers were being
paid too much and that the company would replace them with new employees who would be paid
less. They generally earned $10 to $20 per hour. Eighteen months later Circuit City filed for
bankruptcy protection just before the holiday shopping season at the end of 2008.
The company, which filed for bankruptcy protection in November 2008 but had hoped to
emerge in a slimmed-down form, said instead that it would liquidate all its stores and
assets.
Most of the chain’s 34,000 store employees will be laid off. Closing sales will begin as
early as Saturday and will last until the merchandise is gone or about the end of March.
Just last week, Circuit City, with 567 stores, was in talks with two potential buyers, but it
was unable to reach an agreement with its creditors and lenders.

“We are extremely disappointed by this outcome,” said James A. Marcum,

acting president and chief executive of Circuit City Stores. He called the liquidation “the
only possible path” for the 60-year-old company.
The demise of Circuit City, while not surprising given its declining sales, is part of a
radical shift taking place in retailing. Weak chains — unable to weather the freeze-up in
consumer spending and choked by tight credit markets — are closing.
DISCUSSION POINTS :
Strategic decisions:
• Selection, savings, service, satisfaction, and speed – the Five S’s – was Circuit City’s
operating philosophy in 1984 when the name Circuit City was born.
• This was a time when customers could choose from a wide variety of merchandise .
• The customer receive 110 percent back if they found a better deal .
• The customer enjoyed the peace of mind of a 30-day money back guarantee .
• The customer received expert advice from a commissioned sales force
• The company had the convenience of service and repairs in the store .
• The company’s point-of-sale systems facilitated quick transactions and kept
management apprised of inventory needs .
• Circuit City also utilized customer satisfaction surveys to track progress in all areas .
QUESTIONS FOR DISCUSSION:
1. When making decisions it is important to examine reasonable alternatives before settling
on the best alternative for the decision at hand. What reasonable alternatives could top
management of Circuit City have considered to laying off their most experienced
employees? Was there a better alternative than a layoff at Circuit City?

ANS: In my opinion as it is clearly known that Circuit City was 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." The company could have also kept those
well performing employees at a lower salary . Instead of backfiring them the company
would have taken the initiative to make all the employees understand about the current
financial position of the company and if the employees could really understood the
situation they would have fully cooperate to the company by giving their full efforts even
if getting the half of their salary. In fact the company would have tried to change their
strategies to increase the profitability and sales. Because back firing all the well
experienced employees and hiring new employees will never give that expertise work
which the previous employees were giving .
2. Why do you think companies, such as Circuit City, that are facing economic
challenges so often choose to lay off employees rather than explore other
alternatives that might produce better long-term results?

ANS: Due to falling sales and reduced profitability, Circuit City announced that
3,900 commissioned sales staff would be laid off and replaced with hourly
employees. Before the layoffs, approximately 60 percent of Circuit City’s sales
associates were paid on commission; the rest on hourly pay. The desired outcome of
the decision was to simplify store operations, create a united customer service
objective, and reduce operating costs. The company only gave emphasis on
REDUCING THE ECONOMIC COST that’s why it had chosen the option of
backfiring the highly paid employees with hourly paid individuals or new
employees will be hired in lower wages . Because the company noticed that many of
the employees are being paid more than the market value and even if their job is
being taken they will not face much problem that’s why it had took a decision of
replacing the highly paid employees with new employees.
 CONCLUSION
In this case study we have got to know about various business strategies that are
been taken by the Circuit City . As the company was running very smoothly and
have achieved a lot of success in its operating days but after some days its when its
sales and profitability reduced it have faced a lot of problems in operating in the
market . After that it have taken decision of backfiring all the employees who are
being paid more with the new employees to which wages will be paid on hourly
basis. Still then the company was operating but after some years it faced some
troubles due to which the company became insolvent.