Following a day-by-day tactical schedule, store managers marked down remaining inventory, advertised closing sales, and finally furloughed their employees and themselves. In February, when the plan was executed, Egghead Computer, a once-thriving retail chain selling personal computer hardware and software, disappeared from the material world. A mainstay of suburban malls nationwide with 250 stores at its peak in 1992, the Spokane, Wash.-based company was closing the doors to its remaining 80 shops.
But Egghead, founded in 1984, didn’t vanish like that 19th-century remnant, Woolworth. Instead, the company reappeared in a virtual venue that many observers expect to be at the heart of 21st-century retailing: the World Wide Web. Renamed Egghead.com, the company’s operations are no longer in rent-laden storefronts but on three low-overhead Web sites-colorful, catalog-style markets that sell all things computer-related. It has become in effect a virtual mall, with a flagship outlet for new goods (www.egghead.com), a bargain warehouse for refurbished or discontinued products (www.surplusdirect.com), and an online auction house for avid bargain hunters (www.surplusauction.com).
In place of display shelves of boxes of hardware and software, Egghead now offers postage-stamp-sized graphics on your computer screen and brief text descriptions of PC hardware and software. What the new Egghead lacks in kick-the-minitower physical immediacy it makes up for in convenience. In three mouse clicks from the main site’s opening page, any visitor with a valid credit card can fill out and expedite an online order form for a purchase 5 percent to 10 percent cheaper than it would have been in an old Egghead store. Anyone nostalgic for a salesperson can visit an area called the Palace, where a real Egghead employee displayed as a cartoony avatar can converse with you (virtually, of course).
Egghead is not the first online retailer. Assorted startup companies have pioneered popular Web-only commercial outlets for books (Amazon.com), audio CDs (CDnow) and stocks (E*Trade), but this marks the first time that a large established firm has completely abandoned physical retailing in favor of the virtual marketplace. The action has been viewed as a gutsy last resort for Egghead, following a string of unfortunate management decisions.
It wasn’t just bad business strategy at the top that prompted this move. Retail sales are inherently cyclical, subject to economic trends and marketing fads. In addition, software retailing since 1992 has been in the throes of change. Microsoft and a handful of other publishers have come to dominate the applications program market, leading to a loss in retail sales margins. Shifting to include more hardware offerings, the company changed its name from Egghead Software to Egghead Computer. But that repositioning was undermined by a series of costly business moves. One executive, for instance, ordered an expensive warehouse change because he didn’t like the neighborhood where the company’s main storage facility had been located. In another misstep, Egghead got rid of its corporate sales force, which had been a major source of revenue.
Even without such blunders, Egghead faced mounting pressure from larger-scale retailers such as CompUSA and Wal-Mart. Egghead was hemmed in by the smallness of its shops, which typically inventoried 2,000 different items or “stock-keeping units” (SKU) in the jargon of the trade-hardly enough to compete with the 5,000 SKUs available at nearby computer, office supply, or buying club superstores. Egghead was especially vulnerable because many of its leases were due for renewal 10 years after its greatest expansion, and the new rentals would have been prohibitive. In response, the company attempted to become an all-superstore chain, opening three large-scale retail outlets. But these stores cost as much as $4 million each. Egghead was in the midst of a dismal period, losing money in 10 out of 12 quarters during 1995-98. A makeover of its remaining stores amid this prolonged financial hemorrhage proved too daunting.
To correct the course, Egghead management-which had already closed theleast profitable stores-opted for a different tack. The bold strategy: stop trying to lick the superstores. Instead, attempt to capitalize on the unique brand equity earned by Egghead over nearly 14 years in the physical world and transform the operation into an online-only retailer.