Egghead Shifts Focus to Internet Commerce

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Battling declining revenues and losses in its retail channel, computer retailer Egghead Inc. will close its 80 retail locations throughout the country and devote itself to Internet commerce.


Egghead, Spokane, WA, which is changing its name to Egghead.com Inc., made the announcement late last month, when results for the third quarter of fiscal 1998 showed a pretax net loss of $6.6 million, compared with a $1.5 million increase last year.


Consolidated sales were down 12.4 percent, from $113.2 million to $99.1 million. Internet sales for the same period increased by $9.3 million to $11.8 million.


"We have chosen to focus on Internet commerce," said George Orban, president and CEO of Egghead. "We believe that Egghead's strong brand name and growing base of over 1 million unique e-mail addresses will be significant assets as we focus on the Internet."


Company officials said the decision was based on the recently reported losses, the rapid growth in Internet commerce within the United States and what they call the "enormous" growth from Egghead's three Web sites, egghead.com, surplusdirect.com and surplusauction.com. The company acquired online computer retailer Surplus Direct, Hood River, OR, in August.


"Since egghead.com went online last year, we have seen visits per day increase from 300,000 in the first quarter to over 6 million in the third," said John Hough, director of corporate communications. "Combined with our other Web sites, we are averaging around $1 million a week in Internet sales revenue and growing rapidly. With that type of activity, we are very optimistic. We want to focus our resources where the best opportunity exists."


Egghead reported that the dollar amount per sale from its Web site over the last few months has been significantly higher than in its retail stores. Although the company does not expect to see a profit for the next two fiscal years, Hough said, it is hoping to have $100 million in sales in fiscal 1999 and double that the year after.


"When making a move like thi,s you have to write off the costs of shutting down the retail stores," he said. "And we are going to make major investments to develop market share, along with investments to develop a marketing strategy and create strategic alliances."


For instance, Egghead will be the exclusive Internet provider of computer products to Geocities' members and Web-site visitors.


John Pettitt, chief technical officer for software.net, a 4-year-old online software retailer, said Egghead's goals are attainable if it realizes the differences in running a retail store and an online retail store.


"It is very possible for them to reach that number," he said, "and making this switch early on in the game instead of later will be beneficial to them. The activity online is growing. The mind-set in running the two is completely different. An online business has to have very good customer service. It has to be flawless. The business process is different, but in the end it's still business."


With more than 8 million names in the combined databases of the Egghead retail stores, egghead.com and surplusdirect.com, Hough said, the company has considered that some customers may be reluctant to switch to shopping online.


But, he said, "Our recent growth shows that many consumers are willing to shop online and that people are willing to make this change and we believe it will take off. People will see a very dynamic Web site and an aggressive effort on our part to put out competitive prices, maintain the sites and make them very easy to use."


Hough said the online location will offer more than 27,000 products, which is a significantly larger selection than was available at the retail locations.


The shutdown of the 80 retail locations and a distribution center in Sacramento, CA, should begin at the end of the month. Egghead said 800 of its 1,000 full-time employees will lose their jobs, which, combined with a savings in administration costs, will reduce overhead $43 million.

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