Roughly 3,400 of the most highly paid workers in Circuit City stores have received a rude surprise as the company announced it was sacking those employees and replacing them with others who it would pay less.
The employees being dismissed have been given the option of reapplying for a job and starting out at the lower wage range being paid to new hires.
The move, according to a statement from Circuit City CEO Philip Schoonover, will "deliver improvements in our selling, general and administrative expense rate while maintaining appropriate investments to drive our key strategic initiatives such as digital home services, multi-channel and home entertainment."
Others, even those who see Circuit City's logic, have some doubts about its decision.
"While we view these cost cuts as clearly good for near-term earnings, they are not necessarily the way to drive longer-term operational success," Bernstein analyst Colin McGranahan told Reuters.
"It stands to reason that firing 3,400 of arguably the most successful sales people in the company could prove terrible for morale," he added.
Mr. McGranahan said this is not the first time Circuit City has moved from a more highly paid workforce to one with lower-paid workers. Previously, the company moved from commissioned sales people to lower wage hourly workers.
"The prior occurrence had a dramatically negative impact on sales, and a significant risk exists that the same will happen again," he wrote in a research note.
Circuit City said 8.5 percent of store employees will be "separated" from the company as a result of the move.
Discussion Questions: How do you think this strategy will affect Circuit City employee morale and customer service at its stores? Are there any positives that could come out of this? Could such tactics have other repercussions in the retail industry?