A Circuit City store
A Circuit City store - 
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KAI RYSSDAL: Consumer electronics is a tough business these days. Price wars over laptops and flat-screen televisions have cut into profits. The once high-flying Circuit City announced a major restructuring plan today. The country's number two electronics retailer says it plans to replace more than 3,000 workers with people who'll work for less. Marketplace's Amy Scott has more now from New York.


AMY SCOTT: It's a funny time in the consumer electronics business. Demand for high-definition TVs is soaring. But so many producers are making them, including discount Asian manufacturers, and so many different companies are selling them, from Costco to Best Buy, that retailers are struggling to make a profit.

Consultant Nick McCoy with TNS Retail Forward says Circuit City is no exception.

NICK MCCOY: Sales have been through the roof. And prices have dropped like a stone.

Circuit City's solution is to cut costs. So, in meetings held around the country today, 3,400 people learned they no longer had jobs. Officials say those workers earned above-market salaries. The company says lower-paid staff will replace them.

Analyst Joe Feldman follows Circuit City for Telsey Advisory Group. He says the strategy could backfire.

JOE FELDMAN: Presumably, the most expensive workers in the store were probably the more qualified workers that are also the more knowledgeable ones. So that could degrade service a little bit.

Not to mention morale among those left behind. Feldman says morale and sales fell a few years back, when Circuit City switched from higher, commission-based pay to hourly wages.

The company announced other cost-savings today. It plans to outsource some information technology jobs to IBM and may sell its stores in Canada. Officials say those who lost jobs will be paid severance, and after 10 weeks are welcome to re-apply.

In New York, I'm Amy Scott for Marketplace.

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Follow Amy Scott at @amyreports