Circuit City to Lay Off 3,500 Employees

RICHMOND, Va. – Circuit City Stores Inc. (CC) 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 jobs.

Its shares rose 3 percent in morning trading.

Circuit City, the nation's No. 2 consumer electronics retailer behind Best Buy Co. Inc. (BBY), 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.

The Richmond-based company also plans to outsource its information-technology infrastructure operations to International Business Machines Corp. (IBM), a move that is expected to cut IT expenses by more than 16 percent. 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.

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 (GS) to advise the company on strategic options for its InterTAN Inc. unit, which could include selling the business.

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.

Its shares rose 59 cents to $19.47 in morning trading on the New York Stock Exchange.