Analysts: Circuit City layoffs backfired

RICHMOND, Va., May 2 (UPI) -- Circuit City Stores Inc.'s replacement of high-paid employees with cheaper workers hurt the U.S. consumer electronics retailer's bottom line, analysts say.

The No. 3 consumer electronics retailer -- which fired 3,400 of its highest-paid store workers and replaced them with lower-paid staff March 28 to cut costs -- is losing business to competitors with better-trained employees, the analysts told The Washington Post.

Large flat-panel and projection TVs -- whose poor sales Circuit City cited in its downward revision of its fiscal outlook Monday -- are "big-ticket" purchases that require "knowledgeable associates," Jefferies & Co. analyst Tim Allen said.

If customers "feel like they're not getting the right advice or are being misled by someone who doesn't know, it would be definitely frustrating. They will take their business elsewhere," he said.

Deutsche Bank research analyst Mike Baker wrote Circuit City's labor change hurt its service levels and enabled chief competitor Best Buy Co. "to take share."

Circuit City said it was too early to know what role the layoffs had in the April sales falloff.

Spokesman Bill Cimino said Circuit City attributed the weak sales to a combination of economics and the company's poor forecasting and planning.