Attempts to Trim the Fat Merely Cut at the Meat

Giant's decision to close 50 staffed seafood counters, like the one at its Dunkirk store above, was misguided.
Giant's decision to close 50 staffed seafood counters, like the one at its Dunkirk store above, was misguided. (By Linda Davidson -- The Washington Post)
By Steven Pearlstein
Friday, March 30, 2007

Add to your list of dumb business moves two announced by area companies in the past week:

Giant Food, the region's largest grocer, said it would eliminate fish counters at 50 stores -- ones with fresh fish arranged neatly on ice, with someone behind the counter. Instead, the fish will be packaged and offered in refrigerated cases, next to the chicken and pork chops.

And Circuit City, of Richmond, said it had fired 3,400 employees across the country -- 9 percent of its workforce -- not because they did anything wrong, or because the company no longer needed them, but because their hourly pay was a bit higher than what a newly hired employee could command.

What we have here are the latest examples of what happens when you subject retail organizations to the incessant demands of Wall Street to produce not just good long-term value for shareholders but an unbroken string of double-digit earnings growth. It's also what happens when you put financial people, rather than merchants, in charge of a store.

Let's start with Circuit City, which is recovering from a near-death experience because of stiff competition from Best Buy and Wal-Mart. Now that things are looking up, top executives decided to reward the people who helped engineer the turnaround with a pink slip and a piddling severance check, telling them they'd have to wait 10 weeks to reapply for their old jobs, at lower pay. "Retail is very competitive, and store operations just have to contain their costs," spokesman Jim Babb explained to my colleague Ylan Mui.

But if retail is as competitive as Babb says, you'd think a merchant might want to keep its best salespeople -- you know, the ones who know the most and have records of selling the most. That would be particularly true at stores where customers have lots of questions that need answering -- for example, those at a chain that sells major home appliances, flat-screen TVs and digital cameras.

But you have to hand it to Circuit City. Without spending a dime for advertising or public relations, it managed to send a powerful message to its major constituencies.

It has made clear to consumers that it doesn't give a fig about service or being a good member of the community.

It has let store employees know they have jobs, not careers, and shouldn't expect much of a raise, no matter how long they stay or how well they perform.

And investors now know that their company is so cavalier about reputational risk that, for $100 million or so in annual cost savings, it is willing to become the symbol of everything that is rotten about American capitalism. So far, Wall Street's reaction has been to discount Circuit City shares by about 5 1/2 percent.

The cutback at Giant Food's fish departments is more modest and less offensive, but in its own way just as wrong-headed.

To hear it from Giant executives, many of the chain's fish counters don't do enough volume to justify the direct cost of having someone behind the counter, nor the opportunity cost of using the space to sell something else. Packaging the fish in plastic not only lowers costs but keeps the fish fresher.


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