Occam's Razor

I am very grateful that I did not make retail a career. It is a scummy business, operating on very low margins and subject to the constantly changing whims of consumer demand. If you do decide to make retail a career then with a few exceptions expect to be treated shabbily. We need no further proof of this than recent press reports that the electronics retailer Circuit City is firing its retail salespeople because it apparently thinks they are overpaid.

Steven Rash, 24, said he was one of 11 workers fired at a Circuit City in Asheville, N.C. The store manager broke the news during a meeting at 8:15 a.m. and escorted them out of the store. Rash said he has worked for the retailer for seven years and was one of the most junior members of the affected group.

He said he earned $11.59 an hour and worked from 15 to 20 hours a week. He received four weeks of severance pay. Though he has a full-time job at Bank of America, he said he needs to find part-time work to help pay his student loans.

“It’s not just a part-time job,” he said. “It’s about paying the bills.”

Like most people working retail, Steven Rash is working part time. Retailers, like many small employers, prefer part time workers for the obvious reasons: they do not have to pay them benefits, they are readily expendable and can typically be easily replaced, because their job is not highly skilled. My wife does not work retail but is one of the part-time work force who falls into this category. In her case, she works as a level-one computer troubleshooter for a doctor’s practice with a staff of about 50. I will not say how much she earns, but I can say when she was working full time she made about $10 more an hour than she makes in her current position, and she was then surviving on a school teacher’s pay. Now she keeps the computers working at two offices in this practice for very modest wages and typically works 20-30 hours a week.

It is a good thing that she has my financial wherewithal to rely on. If we were divorced, she would be in serious financial straits. Even if she could convert her job into a full time position, could she even afford to keep a roof over her head? (We live in the metropolitan DC area, and rents start at $1200 a month.) I doubt she could afford to live alone. Despite working in a doctor’s office, she would have minimal benefits. The practice she works for is feeling squeezed too, perhaps because Medicare is squeezing them with reimbursement rates that do not cover their expenses. It trickles down to substandard wages and high employee turnover. She says in a typical month about 10 people on the 50 person staff leaves for better offers. The same is true in the retail business too. At the wages they are paid, there is little incentive to stick around. There is even less incentive to feel any loyalty for your employer.

Mr. Rash depends on $11.59 an hour to pay off his student loans. He was probably drawn to Circuit City, not because it paid well, but because it paid better than other scummy retailers like Wal-Mart. Still, $11.59 an hour is hardly the sort of salary that would let you lead an opulent lifestyle. By my calculations, if he could have converted his sales job to a full time job he would make $24,000 a year.

For him his “expensive” $11.59 an hour salary is now moot. The severance pay will pay for a month of student loans. He can take some comfort in that. Many retailers would not even provide a severance check. Nevertheless, likely his next second job will pay even less. Circuit City is helping to lower the bar and to ensure even more Americans cannot earn a living wage. Way to go, Circuit City.

Mr. Rash is also fortunate in one other respect: he has a full time job. It is likely that Bank of America offers him some benefits. I do not know how typical he is of most Circuit City workers. Clearly though not all retail workers are part time workers nor depend on the income just to pay student loans. Many likely depend on these second, third or, in some cases, first jobs, to pay basic expenses.

Today I flew out of Denver International Airport. I happened to overhear one of the people working in one of the screening areas. “It’s a good thing I have my retirement to fall back on,” I heard him say. “Because this job pays $18,000 a year. I could not afford to live on this wage.”

I hope for his sake that he works part time. Because if he has a full time job, then he is earning $8.65 an hour, which would be the wage the airlines are willing to pay to deter future terrorist attacks. I do not know if Denver International is one of these airports that are required to use federal screeners. At these wages, I suspect not. It is hard for me to believe that any federal employee would be required to do this sort of grinding work, day in and day out, on Wal-Mart wages.

Not everyone in the retail business though is being screwed. As The Washington Post reports, Circuit City’s CEO is doing fine. While grunt salesmen and women suffer, his salary last year was $716,346. He also got $704,700 in bonuses, $3 million in stock awards and $340,000 in stock options. Imagine how much more he will get this year for this latest brilliant idea.

The Washington Post also reports that the average hourly wage for retail worker, as of March 2005, was $11.14 an hour. Therefore, it is unlikely then that Steven Rash was underpaid. He was likely earning the market rate. This makes me wonder if this latest strategy by Circuit City will prove to be counterproductive. Call me dubious, but I do not think this strategy will help the Circuit City bottom line. Were I a Circuit City stockholder, I would be calling for CEO Philip J. Schoonover’s head or cashing in my stock. Where will this strategy take Circuit City, already suffering from competition from retailers like Wal-Mart and Best Buy? My bet is that it will probably take it right off a cliff. As a stockowner and thus an owner of the company, I would want a retail employee who is motivated to work in the best interest of the company, not some retail drone counting the minutes until closing time.

I have empathy for retail workers because I was one of them myself. In the intervening 27 years, I have been only marginally successful in changing the retail worker market dynamics. I have joined the Wake Up Wal-Mart campaign, which has resulted in a few, modest successes. I have also supported politicians who advocate living wages with significant campaign contributions. I do know one thing: any company that improves its bottom line at the expense of its workers earns my disdain and contempt. Other retailers like Costco and Wegmans have figured out ways to pay living wages to their employees in highly competitive markets and have thrived. So can apparently scummy retailers like Wal-Mart and Circuit City. Their “leadership” is simply bereft of creative ideas.

Although I have not shopped at a Circuit City in years, it now joins a growing list of retailers that include Wal-Mart that I will boycott until it treats its employees decently. They are not cattle. They are people. Employees deserve nothing less than to be paid a living wage and to be treated with respect.

Update 5/2/2007. It seems Circuit City’s “strategy” isn’t working

The company, which on Monday also revised its outlook for the first half of its fiscal year ending Feb. 29, 2008, cited poor sales of large flat-panel and projection televisions. Analysts said Circuit City had cast off some of its most experienced and successful people and was losing business to competitors who have better-trained employees.

“I think even though sales were soft in March, this is clearly why April sales were worse. They were replaced with less knowledgeable associates,” said Tim Allen, an analyst with Jefferies & Co.