CIRCUIT CITY: A LESSON FOR RADIO

Circuit City is the second largest discount consumer electronics chain in the U.S. This week they filed for bankruptcy.

In an attempt to return to profitability, less than two years ago Circuit City “laid off” (fired; sacked) a few thousand employees whom Circuit City decided were being paid too much. No, not top executives who pulled down huge bonuses and outlandish benefits. These were sales “associates” who were being paid above what management had determined to be the market norm for their positions.

Why were those employees being paid so much? Because they were veteran associates whose tenure and job performance ratings had been rewarded with higher salaries.

In other words, Circuit City decided to save money by firing their best employees. Those employees were told they could reapply for their old jobs at a “a market-based salary” — i.e., for a lot less money.

If you’ve been to a Circuit City since then (I have), you might have noticed the salespeople appeared to know less about their merchandise than you did.

Apparently that strategy didn’t work.

Meanwhile, in the U.S. the same strategy is being applied by Corporate Radio: Save money by firing your highest paid employees. Or by offering to renew their contracts but at greatly reduced salaries.

Before everyone lauds me for criticizing this policy, I should point out that some of these “you’re too expensive” victims had been overpaid all along. They never should have received the outlandish salaries they were given by managers who were unable to differentiate between a show host who was lucky enough to be on a highly rated station and a personality who brought ratings to the station.

But the ones who earned it? Not the ones who just came along for the ride but who brought in the listeners, which translated to ratings, which translated to revenue?

Radio stations that employ intelligent managers conduct a cost/benefit analysis before making such salary cutbacks. Sometimes — I know you hate to hear this, but it’s true — sometimes the reduced revenue from an air shift’s ratings drop is considerably less than the dollar amount of the salary being saved. In other words, sometimes it’s a cold but economically defensible move.

Sometimes, I said. Not usually.

Circuit City thought they were saving money. In reality, they were weakening the consumer experience at their stores. Radio stations that decimate their listener experience should not be surprised when ratings — and revenue — decline further.