The cautionary lessons of Circuit City

On Monday, Circuit City filed to reorganize under Chapter 11 of the Bankruptcy Code. Bloomberg posits that this is the single biggest retail casualty so far of the current economic crisis.

All this comes just one week after the company announced that it was shuttering 155 stores across the country.

There are many reasons why this happened, of course, and many of them have nothing to do with Circuit City itself — times are tough and people are scared, and consumer thoughts turn more toward putting food on the table than putting a new plasma on the wall.

But the company appears to have made some major mistakes in the area of customer experience, namely the downgrading of customer service staff with the short-sighted aim of saving payroll dollars.

Consumer protection blog The Consumerist has a striking chart showing the company's stock chart for the past 18 months — and superimposed on it are notable news items from that period. At the top of the curve, right before the precipitous drop-off, is the layoff of 3,400 skilled employees, whose spots were filled with lower-paid replacements.

This isn't clear-cut cause-and-effect — the stock was already on the way down. But it certainly hastened the decline.

At gadget blog Gizmodo, readers are weighing in on the news, and for the most part the conversation is invective. Think about that for a moment — the readers of a high-tech blog, who are the retailer's exact target audience, are overwhelmingly saying "good riddance."

One recent comment, from reader Bluevoter, was typical:

"The beginning of the end for CC was when their former CEO decided that he didn't want to pay 'senior' employees who actually knew something about the products they were selling. He gave them the choice of leaving or accepting a much lower salary, and replaced the departed staff with inexperienced people who couldn't tell you much about anything other than the game consoles and the various games."

Other comments are less civil:

"Good riddance to bad business."

"I have had so many bad experiences there through the years, so many clueless sales guys, so many times I have gone in there looking for something that they didn't have."

"CC is depressing to even just visit. Once, I was getting a spindle of DVD-R for work in the middle of a weekday afternoon, I was trying to check out at the cashier, it was completely unattended, and I went up to the security guard to ask him where do I pay. He said, 'I don't know, try the customer service desk.'"

The common factor in virtually all of the complaints is the quality, acumen and attitude of the customer service staff. Not the selection, not the prices — people care about those things, but more than anything else, they care about getting great service.

At a time when layoffs seem like a good solution for a tightening budget, that's a valuable lesson to remember.