CIRCUIT CITY LAYS OFF 3,400 WORKERS, SAYING THEY WERE PAID TOO MUCH.

Byline: JULIA M. SCOTT

Staff Writer

At $15 an hour, Richard O'Neal was one of the better-paid salesmen at the Circuit City in Woodland Hills. His career there ended about 8:15 a.m. Wednesday in a mandatory meeting for workers being laid off.

Their transgression: They cost too much money.

O'Neal and about a dozen of his co-workers are among 3,400 nationwide dismissed by the company, which will replace them with lower-paid employees.

The dismissed employees received a memo saying, in part, that the company "made a business decision, with respect to certain positions, to separate from employment hourly associates whose pay rate is 51 cents or more above (an) established pay range."

"This store has probably lost all its good salespeople," O'Neal said. "This morning we were all really pissed, but now I laugh about it. What can you do?"

The company chairman said it's just a business decision.

"We're taking a number of aggressive actions to improve our cost and expense structure," Philip Schoonover, chairman, president and chief executive officer of Circuit City Stores Inc., said in a written statement.

O'Neal said he was told he can re-apply for his job after 10 weeks -- if he's willing to work for minimum wage. Currently, California minimum wage is $7.50 an hour. However, company spokesman Jim Babb said new hires will earn more than minimum wage, though he would not specify an hourly rate.

Hiring will start immediately, and job candidates will not be required to have sales experience, he said.

Salary cuts, the termination of a lease for a distribution center in Ohio, and an outsourcing agreement with IBM will save the chain $110 million, the Richmond, Va.-based retailer said.

Last month the company announced it will close seven of its 643 locations and relocate one store. It reported falling profits in the fourth quarter and has been losing market share to Best Buy since 1996. The company is the nation's second-largest consumer-electronics retailer, trailing Best Buy by $16 billion in sales in 2006.

News of the layoffs apparently pleased Wall Street, pushing up Circuit City's stock 2 percent after the announcement. It closed up $0.35 at $19.23.

Timing of the layoffs, two weeks before performance reviews that often come with pay raises, spooked a Circuit City employee who was not laid off and earns $10.50 an hour. He refused to give his name because of a policy that employees not speak to the media.

"You're going to walk in the (manager's) door, and for the first time you're going to say I don't want a raise," he said. "If you take the raise, will you lose your job?"

The employee said he was not worried about the salary cap because his long-term career goals are in medicine.

Specialized electronic companies are being pressured by increased competition from rivals Best Buy and Wal-Mart as the price of flat-screen televisions falls, several analysts said.

Circuit City's woes are also due to its stores, said analyst Andy Hargreaves of Pacific Crest Securities in Portland, Ore. In the 1990s, the chain didn't invest in its stores or open enough new locations while Best Buy did, he said.

"What they ended up with were a bunch of old crappy stores, and now they're still feeling the pain of that," Hargreaves said.

The cuts will boost Circuit City's short-term outlook but could kill the stores in the long term if new hires don't offer the same level of customer service, said Jack Kyser, vice president and chief economist at Los Angeles County Economic Development Corp.

"At the end of the day, it's still the interaction between somebody on the selling floor and the customer," Kyser said. "If there's not a reason to come back because of bad service, that's the kiss of death."

But as consumers become more savvy, learning the difference between plasma televisions and liquid crystal display or LCD sets, experienced salesmen may not be as needed.

Cutting experienced salespeople sends a message to Circuit City's remaining employees and competitors, said Dan Blake, director of the San Fernando Valley Economic Research Center at California State University, Northridge.

"It's certainly going to hurt employee morale," which is a big factor in productivity, he said. But the cuts also signal rival Best Buy that Circuit City will continue to fight for market share. "These folks are not closing down and going out without a fight," Blake said.

Circuit City is scheduled to announce first-quarter earnings April 4.

julia.scott(at)dailynews.com

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CAPTION(S):

2 photos, chart

Photo:

(1 -- color) Experienced salesmen Richard O'Neal, left, and Malek Haddad leave the Circuit City store in Woodland Hills after being laid off Wednesday. They are among 3,400 dismissed nationwide, to be replaced with lower-wage employees.

(2 -- color) About a dozen of the higher-paid salespeople were laid off Wednesday from this Circuit City store in Woodland Hills. They were among 3,400 who lost their jobs nationwide in corporate restructuring.

Evan Yee/Staff Photographer

Chart:

Best and second best annual revenues

Sources: Company reports; Pacific Crest Securities