Is Best Buy Doing a Circuit City?
Circuit City’s demise
has been tied, in part, to its decision to get rid of its highest-paid
and most experienced store staff and replace them with less-experienced workers
who earned less money. Your classic case of penny wise and pound foolish
behavior.
Best Buy, for its part,
has been known as the anti-Circuit City for valuing its staff and empowering
them to serve shoppers in the chain’s customer centricity efforts.
So what gives with the
headlines suggesting that Best Buy is pulling a Circuit City-like move
of its own?
According to a note
to investors by Colin McGranahan, a research analyst with Sanford Bernstein,
Best Buy is getting ready to demote up to 8,000 senior sales associates.
The move would result in cutting their hourly wages by as much as 50%. The chain
is also looking to consolidate some assistant store manager jobs that could
eliminate 1,000 positions.
Susan Busch, a spokesperson
for Best Buy, denied the chain was getting ready to do a Circuit City. “We
are not going down the same path,” she wrote to Dow Jones Newswires.
Ms.
Busch said changes to staffing at store-level were part of the company’s
effort to position itself in light of current economic realities. She pointed
to the company’s decision to eliminate 750 jobs at its headquarters as
part of an ongoing effort to cope with a “global
financial environment … unlike anything we have ever seen.”
She emphasized that
while Circuit City just got rid of its best workers, Best Buy was continuing
to open new stores and create thousands of jobs while other companies were
not. She said affected workers in current stores would be given the opportunity
to apply for positions in new locations opening up. Best Buy plans to open
45 stores in the U.S. this year.
“What
Circuit City did was a pretty big blunder,” Brady Lemos, who follows
Best Buy for Morningstar, told the Minneapolis Star Tribune. “They
let their most experienced sales staff go, and it was clear that people
who worked there weren’t interested in helping you. … Best Buy must be
careful not to do anything to that degree.”
Mr. McGranahan suggested
that store employees’ respect for new CEO Brian Dunn along with a company
culture focused on performance should prevent any major problems within
the organization.
Discussion Questions:
Is Best Buy following in Circuit City’s footsteps with this staffing
move? What does management at headquarters and in stores need to do to
keep workers feeling positive about their place within Best Buy? How
will consumers react to this news?
This move puts Best Buy in a tough position. Economic reality dictates cost-cutting moves at headquarters and in the field, as with many other retailers trying to protect shareholder value in a demand slump. But history is a good lesson — not only Circuit City but also Home Depot under Nardelli — so Best Buy has to be extremely careful here. A short-sighted and less than surgical approach to cost-cutting will be just as visible to the consumer as what Circuit City did, especially in a company building its marketing position on good service. And the consequences for a demoralized team are high unless management makes its case internally, not just to outside stakeholders and observers.
Both Best Buy and Circuit City got rid of commissioned sales people long ago so I’m not sure this is news. Like all big boxes they are trying to protect the bottom line by cutting labor. That has to impact the “blue shirt” team mentality they have so carefully crafted over the last few years. It is not going down the same path as CC who just fired people and replaced them with lower paid individuals. BB is demoting senior employees. Can’t see grumpy employees feeling held hostage to take a big pay cut. The best will leave. In that way they are pulling a CC.
Best Buy can try to spin it any way they want. Cutting the salaries of their best sales people and inviting them to apply for work at other BB stores can only have one effect–negative.
This should be a time when BB goes all out to solidify its market position vs. competitors. Circuit City is gone and other electronics chains, like Tiger Direct and a revamped CompUSA loom on the horizon. This is the wrong move at the wrong time.
CC strategy was to fuel up a flame thrower and go. It ‘sounds’ like there may be a strategy behind this. I have to question whether existing associates will have to go through the normal competitive process or will there be a transfer waiting for them? It sounds like it may be the former in which case the bottom line is these people are getting fired and they will have to apply for and compete for jobs with the rest of the unemployed.
Now this could be a good thing for BB as they can pick the best possible people from a larger pool of workers. It’s hardly fair to the person who gave up years working for BB. They usually pride themselves on being a really great employer. No matter how they execute this, I can’t see it helping morale at all. How about re-evaluating pay structure first? Perhaps it’s time to move to more of a commission structure for them? It’s painful but now is not the time to mess with morale and service. You need everything you have to work in the ‘current economic realities’.
When will companies learn their biggest assets are their PEOPLE? Did we not learn from CC’s mistakes?
Yes, this will put Best Buy in a difficult position and with the CC blunder so current in the minds of many it could be a disaster. This certainly will give any formidable challenger an opportunity to seize.
Unfortunately, companies that need to do a downsizing of this size never handle it well. Often times it is so overwhelming they pass it off to a financial or HR guy, which is the wrong move. If a downsizing is necessary it should be performed with surgical precision in order to retain the A players in any given organization and unload the B- and below players. We’ve all been in companies when an A player is let go, only to realize that three people have to be hired to carry the load of that player. Duh! That person was making that kind of money for a reason because over performers do just that.
I agree with Susan. Ironically, I’m wrapping up research on workforce management that publishes next week, and it involved a review of our benchmark survey from the end of 2007, which basically found that retailers do not consider their employees assets, and so invest accordingly (i.e., not well). One of the areas we explored in this year’s effort was the opportunity posed by the economy for finding and keeping higher-quality workers. The participants said basically, “We know the job stinks enough that even though we can get 10’s today, we’re not going to try because we know we can’t keep them.”
Best Buy had gone down the road towards self-directed management styles, and everyone wondered at the time how you enable that. I have an idea: now that WFM is flexible enough to handle dynamic shifts, why not have employees bid on the shifts they want to work? Highly popular shifts (high in demand) come with a lower wage per hour (like a reverse auction), and less popular shifts, but ones that need working, come at a higher wage per hour, with bonuses for high customer sat, high sales per hour in the store that day, and for extra training that employees can choose to take on or not.
Because the one thing I know for sure: the way retail employment works today is not working, whether you’re Best Buy or not. Something has to change in how employees are valued and invested in.
In answer to the question, “Is Best Buy Doing a Circuit City?”, today’s RetailWire poll is quite telling: 86% of respondents feel Best Buy’s decision to demote staff and cut pay is going to have a somewhat or very negative impact.
Though the economy is tough for retailers to navigate, I’m surprised Best Buy doesn’t view this as a huge opportunity to leverage their considerable positive brand equity and reputation for customer service to grab even more market share. Every associate wearing a blue shirt influences the customer experience, either positively or negatively. This news is sure to diminish staff morale and have a downstream impact on the in-store experience.
This is very disappointing; they are a large local employer and have, until now, had a strong reputation. It seems like they are taking advantage of the sudden change in the competitive landscape, with the loss of Circuit City, to try to lower costs.
It is hard to find any historical examples of a company succeeding in the long run by getting rid of its most experienced employees.
If service does not give Best Buy an advantage over Wal-Mart what does?
Best Buy seems to be losing its way in terms of its actions that are relevant to employee and customer loyalty. Last week I wrote about the correlation between loyal employees and a good customer experience (and ultimately, customer loyalty). This move by BB seems to go in a completely opposite direction.
Much like the demise of Circuit City, this can only help Wal-Mart and, one of the most customer-centric merchants in the world, Amazon.
Success in retail is dependent on many things, one of the key ones being the emotional state of the front-line associates who service the customers. An electronics purchase is a social experience. Whether it is through reviews on the web, recommendations from a friend, or most directly, the assistance of a salesperson in an aisle, retailers have to be very careful to manage that component of their brand. Unhappy salespeople result in lost sales. I wonder if Circuit City decided to release their people, versus demoting them, because they thought having unhappy sales associates hanging around was the greater of two evils.
Not sure this is as big news as purported and certainly not CC like. Best Buy is a serial reorganizer of their store management hierarchy and this appears to be yet another attempt to balance lowering store costs and less overbearing in-store management with more of a customer focus and more sales staff. They haven’t liked any of the reorgs they have done before, I suspect after awhile they will reorganize again.
Having owned home electronics stores in the 1980’s when almost every piece of electronic merchandise became a commodity, one of the only ways to survive was to offer exceptional customer service and knowledgable personnel. Now that Circuit City is gone, Best Buy may think that it is the only game in town, but without knowledgable personnel, why should customers travel to their brick and mortar locations when they can by the exact same merchandise at a lower cost on-line? I think Best Buy is creating an opportunity for new and more knowledgable entrepreneurs to fill the vacuum with value added alternatives.
If Wal-Mart is not currently the biggest competitor of Best Buy, it surely will be. Be assured, Best Buy will never be able to compete with Wal-Mart on price. Similarly, Wal-Mart will never be able to compete on expertise. Best Buy has already locked that segment, so why would they risk their reason for being?
I’m with Susan on this one. WILL THEY NEVER LEARN???
For a retailer like BB, their best salespeople are the difference between running an increase and posting a decrease. It’s not product, pricing, location, advertising, and promotions; those things are givens. The difference is people, and their unique abilities to engage customers and convert sales.
Here’s a thought for an experiment, which actually occurs everyday in the world of small, independent retail. Imagine you’re a small store owner, and you’ve got a couple of real solid salespeople working for you, who have proven they can convert customers and drive sales. Under what circumstances would you cut their pay, or even let them go???
You know, this is not as new a move as is being presented. BB’s service over the Christmas holiday was AWFUL. Staffing levels were low; workers on the floor were completely indifferent to customers.
I came in looking for a web-advertised “store only” special, and could not get anyone to wait on me at all – except an LG rep who was assigned to the store. At some point I said to a manager (hiding behind a desk) “If you don’t want to wait on me, I’ll just go to Circuit City.” He looked away.
I walked out and ended up buying the TV on Amazon.com.
I was therefore not surprised to find profits down. I think there is serious trouble in paradise. Gordon Brothers (I think) bought the Circuit City name. Expect a comeback of another electronics retailer sometime soon. BB is vulnerable.
I am not sure this is a “CC” type of blunder. However, in my experiences, any time there are large job actions affecting several hundred (and in some cases thousands), the resulting morale of those who remain is negative. Few will be able to truthfully state it has not made them lower their own expectations of the company, their future, etc. Some will never recover for a variety of reasons, and others will end up looking over their shoulder for the rest of their career.
Others will see the changes as an opportunity and will begin to raise their level of expertise and fill the niche they see. This is how the winners will appear.
Although, if Best Buy is not careful, the winners are always the first to leave for a better situation. They leave behind the ones unable to change. Thus the never ending cycle continues.
First off, “demoting” staff without actually cutting them should help the company avoid the costs associated with laying people off – if they have any commitments/requirements for severance and such. The most unhappy will just leave so there is no long-term or short term financial impact on BB.
I purchase quite a bit of electronics products and have purchased some specifically at BB because of the extraordinary service I’ve received – and expect to receive if I need to return/repair something. I’ve paid significantly more than what I’d have paid on-line for those items, but my wife and I believe in paying for certain services – and BB’s service has been service we’ve been willing to pay for.
If their in-store service starts to more closely resemble what I can get from the on-line companies, I’ll move more of my personal business there. I have providers I trust and who have much better solutions for researching and comparing products (Newegg for example).
I think BB is in a tough place and I hope their new leader isn’t looking at how he can cut costs for a few years, make an impact, and then walk away with a golden parachute without caring about the long-term affect on the business. If I were a stakeholder, I’d be seriously questioning this move.
Every retailer faces a similar problem: sustain or enhance competitive differentiation and advantage in the face of stagnant or declining volume. Very little in life is really free….duh. The facts facing BBY are that customer service is expensive, particularly right now. Managing overhead is a completely appropriate response to stagnating sales, given a corporate forecast for more of the same into next year. Would a minority shareholder tolerate BBY NOT cutting costs if it was even remotely possible?
The comments made so far are all apt, within the scope of their inquiry. Should BBY maintain its competitive positioning vis-a-vis WMT through customer service? Absolutely. Is some form of customer service, along with breadth and depth of assortment the primary competitive dynamic for BBY? Absolutely. Both of those, however, are expensive. Inventory ties up working capital and, in the end, costs margin. Service requires training, reinforcement, support, and, in the end, compensation for performance. Demoting senior sales executives does not SOUND like a tactic which is designed to support BBY’s market positioning. Yet if they do not cut costs, what then? Where should those costs be cut?
Mature companies with progressive human resource practices generally face the same financial reality when sales stagnate: the overhead base is no longer competitive. Employees stay too long with the company and, with salary inflation, after a certain number of years, no longer deliver “value” to the organization relevant to their cost. Sorry…but it’s true. Yes, there are ways to try to leverage all that experience….but those are “good times” tactics, not stagnating sales tactics.
Like it or not, turning over the store employee base, if managed well and with respect, is in the best interests of the BBY shareholder. Probably.
Most retailers employ linear thinking about their employees: it is one of the variable costs they can control; reducing it saves money; retailers need to save more money now; therefore, reduce employee costs.
Most retailers do not closely analyze what their employees do, how they do it, how they can eliminate non-value added activities and increase value added customer service activities. How often do you have to go into a Best Buy and see employees wandering aimlessly looking for something to do, or standing around in groups talking to each other, before you realize they have an underutilized workforce? Or, they could spend the time analyzing the way they use their workforce, build it to the right size, pay it adequately to incent the workforce, and gain dollars in sales per employee.
We know that these companies make all of their profit on extended warranties. You get new tires and they offer you an extended service warranty. You get a cell phone and they offer you another form of insurance. The double whammy is the store credit card. Pull out your key ring and sort through two dozen rewards cards that apparently don’t help these companies stay in business either. When did selling product turn into selling insurance, extended warranties, and credit cards?
If it made these companies extremely profitable and strong during a downturn in the economy, it would make sense.
It feels like it’s attracted very arrogant CEOs and made them wealthy. It feels like the employees are grossly underpaid and it has attracted incompetent, desperate people into the retail field. Neither of these circumstances feels like a value proposition to me.
I think this is much different than Circuit City. CC was a badly-run company that would have failed no matter what they tried. Best Buy is doing what most public companies do in a down market and that is to do anything and everything to get the stock price up. Any problems this causes will be handled by the next CEO.
Also consumers are pretty tech savvy these days and don’t need pimple-faced teenagers in blue shirts to show them what to buy. Really now, have any of you that have shopped at Best Buy really gotten any meaningful advice from a Best Buy employee? For sure they are a step up in class compared to Wal-Mart employees, but if they were really smart, they wouldn’t be working on the front lines of retail.
In these times, cutting costs is important. But, making the right key investments–right now–is equally as important. Many retailers confuse cost and investment. When motivating sales people, you are investing in your employees that will create a return.
Any time you cut people’s wages you are sending them a message that you no longer value their services. How can you then expect their loyalty and peak performance? There are many ways to effectively cut costs including eliminating the poorest performing people (something CC totally didn’t get). BB should focus on cutting costs in a manner that does not affect the customer experience.
Circuit City made a good decision to let go of their best sales people because their best sales people were horrible at best anyway. It seemed when I went to Circuit City I would be approached by a middle aged, tobacco/alcohol odor, high-pressure salesperson who just couldn’t seem to focus on anything other than selling an extended warranty. Their best sales people were scaring customers off. Best Buy looked pretty good compared to the horrible situation at Circuit City. Now consumers are realizing that at Best Buy, they just employ kids in blue shirts who claim not to be on commission but the first words out of their mouth they are trying to sign you up for loyalty card and an extended warranty. It’s off to Wal-Mart where at least no one will speak to you, thus ruining your shopping experience.