Circuit City To Cut More Than 3,500 Jobs

Circuit City Stores Inc. said Wednesday it plans to cut costs by laying off about 3,400 store workers and hiring lower-paid employees to replace them, and by trimming about 130 corporate information-technology jobs.

Circuit City, the nation's No. 2 consumer electronics retailer behind Best Buy Co. Inc., said the store workers being laid off were earning "well above the market-based salary range for their role." They will be replaced with employees who will be paid at the current market range, the company said in a news release.

"We are taking a number of aggressive actions to improve our cost and expense structure, which will better position us for improved and sustainable returns in today's marketplace," Philip J. Schoonover, Circuit City's chief executive, said in a statement.

Circuit City employs about 40,000 part-time and full-time store associates, according to spokeswoman Jackie Foreman. The 3,400 laid-off hourly associates will get severance packages, and they can choose to apply for any open positions after 10 weeks, Foreman said.

The Richmond-based company also plans to outsource its information technology infrastructure operations to IBM Corp., a move that is expected to cut IT expenses by more than 16 percent over the seven-year contract. About 50 of Circuit City's IT workers will move to jobs with IBM and remain on the Circuit City contract. The other 80 corporate positions will be cut.

As part of the $775 million contract, IBM will manage data-center operations, store support services, service desk operations, e-commerce hosting operations, network services, desktop support and other IT functions, the company said.

The changes follow the company's announcement this winter of planned cost-cutting measures and management moves to improve sales and cut expenses.

In February, Circuit City terminated its lease on a previously closed distribution center in Columbus, Ohio, at a loss of $4.8 million, but the move is expected to cut costs associated with the lease by about $6 million. It also finished a previously announced closing of a Louisville, Ky., distribution center that was used primarily for store fixtures and signs.

In Circuit City's international operations, the company has hired Goldman Sachs to advise the company on strategic options for its InterTAN Inc. unit, which could include selling the business. Circuit City bought the Ontario-based InterTAN chain from RadioShack Corp. in May 2004.

Circuit City closed about 55 stores in Canada in February as previously announced, and expects to close about 10 more stores in the first half of fiscal 2008.

Circuit City on Wednesday downgraded its guidance for fiscal 2007, saying it now expects sales to grow 8 percent, instead of the previously anticipated 9 percent to 10 percent increase. Domestic comparable-store sales are expected to rise 6 percent, down from 7 percent to 8 percent.