Egghead to Close All but Two Southland Stores
Citing increased competition and sagging sales, computer and software chain Egghead Inc. announced Friday that it will virtually withdraw from Southern California in a reorganization that will eliminate nearly half of its stores nationwide.
The struggling retailer said it will immediately close 20 of its 22 Southland stores so it can concentrate on more profitable markets. The company will retain its Pasadena and West Los Angeles stores. Nationwide, Egghead is closing 77 of its 156 stores.
Egghead is reducing its presence in Southern California because the region is too competitive, said company Chairman George Orban. “Southern California is a very saturated market,” he said. “The closings allow us to redeploy our resources.”
The store closings and layoffs at the company’s Spokane, Wash., headquarters will result in the elimination of 800 of Egghead’s 1,800 jobs.
Egghead also announced Friday that three top executives--including Chief Executive Terry Strom--have resigned. Strom’s duties and title will be assumed by Orban, the company said.
The reorganization is the latest effort to revive Egghead, which has been losing ground to CompUSA and other big retailers.
“Egghead and other chains that operate smaller stores can’t offer as wide an array of products as the superstores,” said Eric Boyce, an industry analyst at First Dallas Securities in Dallas. “The superstores are generating more traffic because they offer some office equipment as well as a larger selection of computers, software and peripherals.”
Most Egghead stores are 2,000 to 3,000 square feet--about one-tenth the size of rival superstores. The company last year opened 11 5,000-square-foot stores, and Orban said Egghead would opt for larger sites in the future.
He said the company will continue to diversify by adding a greater selection of computers. Founded in 1984, Egghead originally concentrated on the sale of software. Today, computers and related equipment account for 44% of the company’s sales.
“They’re making these changes because the specialty software store--as a category--is in trouble,” said industry consultant Seymour Merrin, head of the Palo Alto-based Merrin Information Services.
Merrin said that CompUSA, Best Buy, Staples and Office Depot currently dominate the computer and software market.
Industry observers noted that the company has taken other steps to revive its flagging business.
The company in November sold its corporate and government sales division to Dallas-based Software Spectrum. The division, which had accounted for about half of Egghead’s sales, sold products directly to corporations and government agencies. The division was sold to allow the company to concentrate on its retail operations.
Sales at Egghead stores declined 12% for the nine-month period ended Dec. 28, the company said Friday. Egghead shares fell 62.5 cents to $5.375 on Nasdaq.
