Retailer's mass firing reflects sector's woes

Circuit City's actions highlight plight of sales clerks as merchants' margins thin, Web competition grows

March 29, 2007|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Working the sales floor at a retailer won't make you rich, but thousands of people manage to make a living doing it.

Yet the announcement yesterday by Circuit City that it terminated 7 percent of its better-paid hourly employees and will replace them with inexperienced workers who earn less is the latest example of how difficult it is becoming to make retail sales a career, some industry consultants said.

The growth in retail employment has lagged behind overall job growth in recent years in part because Internet shopping has cut into the demand for sales associates. Self-service checkouts also have decreased the need for sales workers while helping retailers cut costs.

And retail analysts expect more job losses if the housing market continues to deflate and consumer spending slows. "I think certainly it's a signal that the pressures are mounting on these retailers, that sales are not meeting their expectations," said John A. Challenger, chief executive of Challenger, Gray & Christmas, a Chicago outplacement firm.

While many retailers have made changes in employee pay in recent years by moving workers from commission earnings to hourly rates, analysts said Circuit City's decision to refill current positions with lower paid people is unusual.

Circuit City, the country's second-largest electronics retailer behind Best Buy, said it terminated 3,400 of its 48,500-person work force to save money while it faces lagging revenue.

In the Baltimore area, 38 sales associates at seven stores lost their jobs, while 138 people at 19 stores were terminated in the Washington market.

Circuit City said it let go of workers who were making 51 cents or more an hour above what the company had set as market wages. It wouldn't provide specific salaries. The company said the workers, who received severance packages, could reapply for their jobs at lower pay in 10 weeks.

"As you know, retail is an extremely competitive environment and for companies to grow and thrive and companies to offer consumers products at prices they expect, retailers must contract their costs," said Circuit City spokeswoman Jackie Foreman.

The Richmond, Va., retailer also is eliminating 130 jobs by outsourcing some computer operations to International Business Machines Corp. The retailer hired Goldman, Sachs & Co. to study a sale of its 900 Canadian stores.

Circuit City expects to save $110 million in fiscal year 2008 and $140 million in 2009 by taking the steps. The job cuts were in addition to plans it announced earlier this year to close some stores.

But some consultants and analysts worried that the cuts would come at the cost of customer service and employee morale. And many of Circuit City's competitors are expected to highlight their service and careers in light of the latest announcement.

"I completely understand the impetus to restructure, but it's easy for firms to cut too close to the bone," said Jared Bernstein a senior economist at the Economic Policy Institute, a Washington think tank. "In this situation they're trying to save on costs in a way that ultimately will hurt their services."

Retail jobs aren't the most lucrative. The industry has high turnover rates and usually attracts younger people or lower-skilled workers because of its pay. Wal-Mart Stores, the world's largest retailer, has received steady criticism for making high profits off the backs of what many describe as lower-wage employees.

In 2005, the nation's 4.4 million retail salespeople earned an average of $11.14 an hour or about $23,000 a year, according to the Bureau of Labor Statistics. The lowest-paid workers in the industry made hourly wages of $6.54 or less an hour while the highest paid earned $17.91 or more an hour, which is about $37,000 a year.

"In most retail jobs, they're not represented by unions, and they're classically low wage," said Beth Shulman, a lawyer, former union executive and author of The Betrayal of Work. "They shouldn't have to be."

In general, retail jobs have grown at a slower rate than most industries, according to the Economic Policy Institute. Since August 2003, employment has been up 6 percent overall and 3 percent in the retail sector. In the past year, overall employment increased 1.5 percent while the retail sector was flat.

"Retail has been taking it on the chin for awhile, especially on the employment side," Bernstein said.

Things could get worse if the housing market continues to slump, analysts warned. People are already spending less to furnish their homes and fewer consumers are dipping into the equity of their houses to pay for purchases.

"I think it's likely if the economy slows down and consumer spending slows down we could see job losses," Challenger said. "The housing woes and subprime lending and consumer inability to pay the next mortgage payment could cause some problems going forward for some of these retailers."

But not everyone predicts such doom for retail careers.

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