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The Egg Man Cometh

At 54, Egghead Chairman and CEO George Orban is a thinning-haired patrician who vaguely resembles the Egghead brand’s shiny-pated inspiration, Adlai Stevenson. According to the company’s Web site, the term “egghead” was “originally applied to an intellectual who supported Stevenson’s presidential candidacy” in 1952 and 1956-elections that Stevenson, much loved by highbrows, lost in landslides to Dwight Eisenhower.

With little technology background in his career as a venture capitalist and retailer, George Orban might seem an unlikely champion of e-commerce at Egghead. He had to be called out of retirement after leading the turnaround of Ross Stores, a failing department store chain he transformed into a successful discount clothing retailer. Orban was drafted by the corporate board of Egghead, in which he had been an early investor. In 1996 he was named chairman. In January 1997, he also became the company’s CEO to turn around the ailing firm.

“This isn’t an evolution I recommend for every company in the physical world,” Orban tells hundreds of attendees at the Jupiter Shopping Forum, an electronic commerce trade show in New York City in April, three months after the announcement of Egghead’s complete withdrawal from real-world stores. “The virtual world is not going to dispel the physical world.”

On the dais with Orban for a session titled “Reinventing Retail: Defining the Interactive Shopper” sit e-commerce peers representing CyberShop, a fee-charging shopping club site; the online version of television’s successful QVC shop-at-home service; and the emerging new media juggernaut, Disney Online. “Our brand was a very powerful element in our decision,” says Orban. Indeed, much goodwill still attaches to the Egghead name. The company’s Customer Upgrades and Extras (CUE) discount card, good for a 5 percent discount on most merchandise and a victim of the store closings, is still carried in many a Silicon Valley entrepreneur’s wallet.

Shutting the retail stores was a costly gambit. According to Egghead’s annual report, the closings poured $37.6 million in expenses into the company’s river of red ink, including $2.2 million for severance and other costs in cutting 800 jobs-80 percent of the company’s remaining work force. In the process, Egghead cut off its primary source of revenue (sales at its stores), a scary prospect for any enterprise.

“With the benefit of 12 weeks’ hindsight, I think we were absolutely right,” Orban comments immediately after the e-commerce panel. Easing his decision was the company’s firsthand knowledge of Internet commerce through the acquisition of Surplus Direct, a successful Web-based computer goods liquidator, with real-world offices in Hood River, Ore. While providing practical systems experience in taking and fulfilling online orders, Surplus Direct also gave Egghead an auction site for odds and ends and a closeout site equivalent to Filene’s Basement, the Boston-based chain of apparel stores. Recalls Orban: “In the fall of 1997, we relaunched, which had been a corporate identity site. After that we decided we could shut down the remaining stores.” The last vestiges of the old business-a toll-free telephone number to order items from printed catalogs-will be phased out within the next year.

According to the first annual report after its store closings, Egghead’s most spectacular expansion came on the Surplus Auction site, where total registered bidders shot up to 168,000 in June, from just 29,000 nine months earlier. By July, the Web survey firm MediaMetrix was reporting that traffic on all three Egghead-owned sites made the company the seventh most popular electronic commerce site on the Web. Egghead trailed bookseller as well as C/NET Software Download Services, a direct competitor.

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