The ongoing saga of Circuit City’s downward spiral continues!
Faithful readers of CtW Connect will remember that I’ve been following CC ever since its incredibly boneheaded decision in March of last year to fire 3,400 of their best-performing workers in order to cut costs.
By stripping their staff of the salespeople best able to explain complicated technology to customers just at the moment most people started to move to HDTV — a complicated technology if ever there was one — they managed to completely destroy their competitiveness, and the market noticed. By the end of 2007 the company’s stock had lost something like two-thirds of its value. In February they announced a radical comeback plan whose key strategy was to dress all their remaining workers head to toe in black; unsurprisingly, that didn’t turn things around. By June they were flailing around unsuccessfully trying to find a white knight who would buy them out.
Well, the company’s slide has continued unabated since then: on November 3 they announced they were closing 20% of their stores and laying off 7,300 people, and today they filed for bankruptcy protection. As you can see from the chart above, a share of their stock is now worth less than a copy of your local newspaper (and the newspaper at least comes with comics and a crossword puzzle).
Why have I been following this story all this time? Because it’s the clearest example I’ve ever seen of how corporate America’s mania for cost-cutting and quarterly results can lead to long-term disaster. If Circuit City had invested in its workforce rather than treating it as an expense to be trimmed, it would be in a very different position today. But they didn’t, and, well, now they are where they are.
There’s a lesson in there somewhere. It’s just too bad CC’s employees and stockholders had to suffer so that a few idiots at the top could have the chance to learn it.
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And if you look at their filings, specifically CEO's compensation (base pay + bonuses + stock & options + expenses paid for by the company) vs. profits & employee pay, you would have known this was going to happen. Not to mention going into one of their stores and trying to get waited on! A sure sign of company in trouble is when the top execs compensation is totally out of line with the rest of the financials.
Posted by Michele Passeretti on December 4, 2008 at 4:06 PM
Posted on December 4, 2008 at 4:06 PM