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Not-So-Golden Egghead

Unfortunately, registrations and visits alone don’t pay the bills. Egghead reported a loss of $39.6 million for the fiscal year that ended in March, a sharp increase in losses from the $10.7 million of the previous year. In conversation in New York, Orban is candid about further losses: “For the foreseeable future, we don’t see this as a period of reaching for profit. This is a period of transition. We are investing the resources of the company for the future.”

Orban could be right. Though it’s still too early for solid conclusions, first indications hint at online retailing initiating Egghead’s long-hoped-for turnaround. In the first full quarter after the last store closings, expenses were half those of the previous quarter. Shutting its physical storefronts cut $7 million in expenses directly, and led to savings of another $2 million in corporate administrative costs. During the same period, online orders rose 41 percent-to $21.1 million in the quarter ending July 30.

The securities market seems to have taken these signs of healing seriously. This summer, Egghead stock (NASDAQ abbreviation: EGGS) was borne aloft by a wave of Internet speculation on Wall Street. Selling at $6.50 a share when Egghead’s e-plans were announced, in five months its price rose and fell to about $8.50 at the start of July. Then in the same spurt of buying that made Broadcast.com the fastest-rising stock in the history of initial public offerings, Egghead shares more than tripled in value over the next two weeks before settling to $17.87 by July 30, some six months after Orban’s store-closing announcement.

Was this the start of continued fast-growing valuation of Egghead by savvy financial markets or just a bout of online investment mania by latecomers to the high-tech stock surge of the ’90s? It’s too soon to know, but differing opinions are easy to find. “I think Egghead management made a great decision,” says analyst Casey Stern of Starr Securities. “Egghead has a great deal of brand recognition, and it’s transferable to the Web. Now they can concentrate on the business of selling.”

Industry consultant Frank Catalano, marketing manager for Egghead in its heyday from 1988 to 1992, is less upbeat. “I would like to be proven wrong, but they’ve taken every bad turn they could,” he says. At the heart of his critique of Egghead’s e-commerce-only business model is what he called “a huge fallacy” that online retailing will largely displace physical stores. “At most only 25 percent of the United States is hooked up to the Web, and retail stores will remain an important physical presence for shoppers for a long time to come,” says Catalano.

Nor has the transition to e-commerce been without tension. The Web-using public, perhaps spoiled by promises of instant gratification, can be an ornery lot. A company that thrives on the Web can also die on the Web, given the medium’s accessibility to opinions of all stripes. There is, for example, a personal page titled “Egghead.com Sucks Big-Time!” that includes the admonition “Buy Elsewhere!!!!!” and a compilation of complaints from dissatisfied customers. Such pages are as easily located via Web search engines as Egghead.com’s own sites.

At the end of the Jupiter Shopping Forum panel, Orban reveals to the audience that in the long term, Egghead is looking beyond computer hardware and software sales. He says: “On the Web, we’re in the business of aggregating customers. We think we’ve figured out how, over time, we’re going to make money. It sure as heck isn’t going to be in the commodity business of selling highly visible branded consumer high-ticket durables.” In other words, as the personal computer business becomes more mass-market, and buying decisions are increasingly driven by price, it is better to be in other sales arenas. Gathering visitors through its memorably named Web portal and providing links to other commerce sites could offer Egghead additional sources of revenue.

Already, Web sales powerhouse Amazon.com has expanded beyond books into music and then into everything else with the acquisition of Junglee, an online personalized buying comparison service, prefiguring the infrastructure for a virtual superstore of its own. As for Egghead, its Surplus Auction site already sells consumer electronics products and jewelry. How long before Egghead.com expands into a full-line online superstore?

It is to Egghead’s good fortune that its 1980s-coined name still sounds fresh and irreverent, ’90s Web-style. On the Internet, there’s no reason at all why Egghead can’t become the online Wal-Mart of tomorrow. But even in the fast-paced world of e-commerce, it’s going to take some time to find out whether Egghead has successfully reinvented itself-or simply prolonged its demise by imploding from brick-and-mortar stores into a virtual enterprise.

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