Must Cut Costs AND Increase Sales to Survive

I just read an archived Business Week article that discussed some of the problems that led to Circuit City’s recent filing for bankruptcy. One of the biggest mistakes that CEO Philip Schoonover made was to fire 3,400 experienced employees in the wake of declining sales. Everyone knows the best way to increase revenue is to increase sales and cut costs. “And” is the key word here. Both strategies should be implemented, not just one. As BW put it, “you cannot cut costs and save your way out of deterioration.”

In the case of Cicuit City, axing 3,400 employees was one of the worst mistakes they could have made. Purchasing consumer electronics, especially high-end electronics necessitates customer support and an experienced sales staff. I mean, no one wants to buy a $1500 plus flat screen from some pimple-faced high schooler that doesn’t know his stuff. In fact, there really was no major difference between Best Buy and Circuit City as far as their product lines are concerned. So limiting the expertise of its sales force was the biggest move Circuit City could have made in order to give its biggest competitor the upper hand.

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