Retailers do that all the time, John, that wasn't what caused it, just an indicator that the writing was on the wall.
Circuit City's been on its way out since the nineties, to be perfectly honest. I was actually with the company back when they had a round of layoffs back in 2003. They eliminated commission to try and curb new employee salaries a bit (The place was a fucking dream come true for a teenager, I made $8 to start PLUS commission), compensating high sellers by averaging everyone's yearly commission aggregates into a base pay. Unfortunately, this resulted in a large number of extremely high sellers in big market regions being let go because they were too expensive. While it sucks, I can completely understand it, as there were salesmen making more than management and sales really isn't a job that deserves the $30+ an hour that some dudes laid off were pulling in (I think the cutoff was $26 an hour that they started letting people go). While sales isn't as easy as some people make it out to be, electronics retail is not a job anybody should be pulling in close to $60K a year doing.
Best Buy and Wal-Mart are why CC went under. Wal-Mart's always been cheaper and while CC generally had better customer service and prices than Best Buy, Best Buy had much better marketing and had some extremely aggressive expansion in the late nineties. My store closed in late 2003 because we were actively pulling business away from a full-sized store (We were one of the boutique stores in a mall, only two of which survived that particular downsizing nationwide) that was already having trouble due to the Best Buy that had moved in next door.
While, yeah, it's fun to hate on the big guy, Circuit City folded because of Best Buy and Wal-Mart, not because they laid off a bunch of people who were, for the most part, making much more money than they were worth.