I was also surprised.
I first come across Circuit City in the book Good to Great "Why Some Companies Make the Leap... and Others Don't" [I’m based in UK so never visited one of their stores]. In the book Circuit City are hailed as a successful organisation because they followed a number of 'success principles' identified by Jim Collins (an American ‘business guru’).
So, what was the reason for their demise?
They neglected the in-store brand experience.
In the Customer Experience article there is a quote from Jason Goldberg, VP marketing for MTI, who was on the team that designed the in-store experience for Circuit City in the 1990s:
“They made the dramatic step of cutting their most expensive salaries and in the process, eliminated what remained of their most loyal high quality sales staff,"
..."They were left with a store that required great sales staff, and no experienced sales staff to support it."
In an age when brand experience is a key differentiator Circuit City’s decision was crazy.
If you don’t deliver a great brand experience when consumers are buying then they will either not buy or not come again. On the other hand, if you deliver an experience that WOWs then they are much more likely to buy, buy again and may be even tell their friends. The power of word-of-mouth/advocacy is well understood.
Staff are the clearly the main drivers of a good in-store experience so cutting best staff is always likely to create a problem.
This is an important lesson for any retailer considering cutting staff cost in these difficult times.