Circuit City expects to reduce expenses by an estimated $110 million this fiscal year and cut costs by at least $140 million annually in the future, says Jackie Foreman, a spokeswoman. Calling retail "an extremely competitive environment," she says, "For companies to grow, and for us to continue to offer consumers products at the prices they've come to expect, retailers must control their costs." Wal-Mart is also instituting wage caps.
Some business analysts see the Circuit City move as simply a necessary "wage adjustment."
"In any market economy, market corrections occur," says Bernadette Kenny, chief career officer at Adecco Group North America, a staffing organization. Noting current market corrections in the mortgage business and in residential real estate, she adds, "There are also market corrections in how people are paid and what people are paid for what work. Pay corrections are a normal part of our economic environment. This isn't about any one company or any one person's value. It's in the context of a broad market supply and demand phenomenon."
But critics question the electronic retailer's decision. "Circuit City's new approach of laying off experienced workers and then offering them the possibility of being rehired at lower wages may be the start of something big – big and bad for the American worker," David Cadden, a management professor at Quinnipiac University in Hamden, Conn., says by e-mail. "It is fascinating how this miser mentality is never directed towards top management. Cost-cutting must be carried on the back of those who have frontline contact with customers."
A better solution is to "fire the nonperformers," says Roberta Chinsky Matuson, president of a human resources firm in Brookline, Mass. "That's where you start. You don't start with the people actually bringing in the revenue."
Dennis Payette, associate professor of business at Adelphi University in Garden City, N.Y., also suggests other ways to reduce costs and staff, such as early retirements, hiring freezes, and attrition.