Circuit City fired its 3,400 best-paid salespeople to cut costs — and killed the company

By 2007, Circuit City — the electronics superstore pioneer founded in 1949 — was struggling against Best Buy and the rise of online retail. CEO Philip J. Schoonover's answer, announced on March 28, 2007, was a 'wage management' initiative: the company laid off roughly 3,400 of its better-paid sales associates and said it would re-staff those positions at lower, market-based wages. The affected workers, many of them the chain's most experienced product specialists, were given severance and a chance to reapply after ten weeks — at the new, lower pay.

The logic confused salary with productivity: the higher-paid associates were largely the ones with deep product knowledge and the strongest customer relationships. The Washington Post reported within weeks that the layoffs were 'backfiring,' with slower sales and demoralized stores. Competitors, notably Best Buy, hired away the displaced experts. Circuit City had already weakened its sales force once before — in 2003 it eliminated commissioned selling and cut about 3,900 salespeople — and this second blow landed on a chain with little expertise left to lose.

The decline accelerated. Schoonover resigned in September 2008 under pressure from activist shareholders. On November 10, 2008, Circuit City filed for Chapter 11 bankruptcy with $3.4 billion in assets and $2.32 billion in debt. No buyer emerged, and on January 16, 2009 the company announced it would liquidate; the last stores closed on March 8, 2009, and more than 30,000 employees lost their jobs. A 60-year-old American retailer was gone.