From today's WSJ
Another industry where e-commerce will likely grab a commanding share is software sales. Jupiter projects 35% of software sales will be made online in 2002, far and away the largest percentage of online sales for markets Jupiter examined. (Online PC-hardware sales are expected to comprise 13% of total sales in 2002, while 11% of book sales are expected to be made over the Internet at that time.)
Those software-sales numbers are what drove Egghead Inc. to the Web
(www.egghead.com). In the mid-'90s, the software and computer-accessories retailer was hemorrhaging money. Two waves of layoffs and restructuring weren't enough to get the chain back in the black amid bruising competition from larger retailers such as CompUSA Inc. And there was a new threat, one that promised to make it even tougher for small software retailers: the Internet.
Two years ago, Egghead closed about half its stores and hired new
management, but same-store sales continued to plunge. Then, in January, Egghead did the once-unthinkable. Emboldened by projections showing explosive online sales growth, the Spokane, Wash., company scratched a plan to open warehouse-style outlets, closed every one of its remaining stores and moved its entire operation to the Web.
Egghead, now renamed Egghead.com Inc., saw its main advantages as its
established relationships with manufacturers and a strong brand name. A move to cyberspace would let the company continue to take advantage of those strengths, while offering a quick way to focus operations and drastically cut costs. After weighing those considerations, the company decided to throw all of its resources behind Internet commerce, and to do it quickly.
Of course, there's no guarantee of success. Egghead acknowledges that
selling commodity goods is a tough way to make money, and is predicting operating losses through the year 2000. It recently overhauled its site, and says its new database can seamlessly move slow-selling goods to its surplus or auction areas, or the reverse -- helping move inventory through the system and creating bargains for consumers.
But George Orban, who became chief executive of Egghead early last year, says he isn't surprised that no other brick-and-mortar stores have followed his lead; after all, Egghead is predicting losses well into the future. For the industry, it's "going to be a long-term shift," he says.
Egghead "was never managed well, and never executed well," he adds. "And like a tree with a shallow root system, we couldn't weather an extended storm."
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