Egghead Software

Egghead Software was an American computer-software retailer founded by Victor D. Alhadeff in 1984 in Bellevue, Washington. It began as a single storefront and built its identity around selling packaged software to consumers, businesses, and institutions, often using discount-oriented pricing and a customer-registration program known as the CUE card. The company expanded rapidly during the 1980s personal-computer boom. By June 1987 it had 50 stores across the West Coast, and by the end of 1989 it had grown to 206 locations. The rapid expansion produced operational and financial problems. Egghead faced losses, inventory-management difficulties, and theft, leading it to close 20 stores in late 1989. The company became publicly traded through an initial public offering in June 1988. Within the following year, its share price fell from $17 to $11, and the founder and other senior executives were sued for fraud in connection with allegations that material information about inventory systems and the company's financial condition had not been disclosed. Egghead continued to develop its retail and distribution business during the early 1990s. In June 1993 it introduced Egghead Express, a software product that allowed customers to place and manage orders. The company moved its headquarters from Issaquah, Washington, to Spokane in 1995. At that point it employed approximately 2,500 people and operated stores in 30 states. Its broad software assortment also made it a useful source for compatibility testing; during development of Windows 95, a Microsoft manager reportedly purchased every program then offered in one Egghead store to test the operating system against available software. The company subsequently retrenched and reorganized. George Orban became chairman in 1996 and chief executive in January 1997. In May 1996, Egghead sold its Corporate, Government & Education division to Software Spectrum for $45 million. In February 1997 it announced the closure of 77 of its 156 stores, and in May it acquired rival Surplus Software Inc. for $31.5 million. In January 1998 Egghead announced that it would close its remaining 80 stores, eliminate 600 of its approximately 800 employees, and operate through the Egghead.com website rather than a physical-store network. The move to online retail briefly aligned Egghead with the late-1990s internet boom. The company's share price rose sharply in 1998, and in 1999 Egghead merged with OnSale.com in a $375 million all-stock transaction. The combined business retained the Egghead.com name, while OnSale chief executive Jerry Kaplan became CEO. The merger connected Egghead's software-retail identity with OnSale's internet-auction and e-commerce operations, but did not resolve the company's financial and operational vulnerabilities. A serious security incident emerged in December 2000. After the company's servers were compromised shortly before Christmas, Egghead feared that payment-card information belonging to more than 3.7 million customers might have been exposed. The company initially denied that a problem existed, but Visa was notified and banks subsequently contacted cardholders, leading to widespread card cancellations and substantial public criticism. Egghead later determined that the credit-card information had not in fact been obtained, but the episode damaged confidence in the company during a period when it was already under pressure. Egghead filed for bankruptcy in August 2001 and negotiated a proposed acquisition by Fry's Electronics. That transaction collapsed after Fry's accused Egghead of failing to provide requested financial documentation. In December 2001, Egghead sold the Egghead.com domain name to Amazon.com. The retailer therefore ended as a distinct operating brand after nearly two decades of expansion, store closures, online restructuring, merger activity, and bankruptcy.

Egghead Software was established in 1984 by Victor D. Alhadeff as a single computer-software store in Bellevue, Washington. Its early model focused on specialist retailing of packaged software, supported by discounting and a customer program called the CUE card. The business expanded quickly alongside the growth of personal computing. By June 1987, it operated 50 West Coast stores, and by December 1989 it had reached 206 stores. Expansion created significant control and profitability challenges. Egghead became a public company through an initial public offering in June 1988. Its stock price dropped from $17 to $11 within a year, and the founder and other senior executives faced fraud litigation alleging that investors had not been told material facts about the state of the company's inventory systems and finances. The retailer also experienced losses, inventory problems, and theft, prompting the closure of 20 stores in late 1989. Egghead attempted to strengthen its customer and ordering infrastructure during the 1990s. In June 1993 it released Egghead Express, which enabled customers to place and manage orders. The company's headquarters moved from Issaquah, Washington, to Spokane in 1995. It then had approximately 2,500 employees and stores in 30 states. Egghead's extensive assortment was sufficiently broad that a Microsoft Windows 95 development manager reportedly bought a copy of every program in one store to test software compatibility. A restructuring phase began in the middle of the decade. George Orban became chairman in 1996 and CEO in January 1997. In May 1996, Egghead sold its Corporate, Government & Education division to Software Spectrum for $45 million. In February 1997 it announced the closure of 77 of 156 stores and reported further losses. It acquired rival Surplus Software Inc. for $31.5 million in May of the same year. By January 1998, management had abandoned the physical-store model. Egghead announced that all 80 remaining stores would close, that 600 of roughly 800 employees would be laid off, and that sales would continue through the Egghead.com website. The announcement caused the company's share price to fall 18 percent, although the stock later rose dramatically during the internet investment boom, gaining 175 percent over a few weeks in July 1998. In 1999 Egghead merged with OnSale.com in a $375 million all-stock transaction. The combined business retained the Egghead.com name, and Jerry Kaplan, previously OnSale's CEO, became chief executive. The merger represented an effort to combine Egghead's recognized software-retail identity with a broader online-commerce model. The online transition was followed by a major security and reputational crisis. In December 2000, servers were compromised and Egghead feared that payment-card information connected to more than 3.7 million people might have been stolen. The company initially denied that there was a problem. After Visa was notified, banks contacted consumers and many cards were cancelled. Egghead later determined that the credit-card information had not been obtained, but the handling of the incident became a significant scandal. Egghead filed for bankruptcy in August 2001. It reached an arrangement to be acquired by Fry's Electronics, but the proposed deal failed after Fry's alleged that Egghead had not supplied necessary financial documentation. In December 2001, Egghead sold the Egghead.com domain name to Amazon.com. The brand consequently ceased operating as an independent software retailer.

• 2001

  Bankruptcy and domain sale

  [1]Egghead Softwareen.wikipedia.org

  Egghead filed for bankruptcy in August and sold the Egghead.com domain name to Amazon.com in December.

• 1999

  Merger with OnSale.com

  [1]Egghead Softwareen.wikipedia.org

  Egghead combined with OnSale.com in a $375 million all-stock transaction and retained the Egghead.com name.

• 1998

  Transition to online-only retail

  [1]Egghead Softwareen.wikipedia.org

  Egghead announced that it would close all remaining stores and sell exclusively through Egghead.com.

• 1997

  Major store closures and Surplus Software acquisition

  [1]Egghead Softwareen.wikipedia.org

  The company announced the closure of 77 stores and acquired Surplus Software Inc. for $31.5 million.

• 1996

  Corporate, Government & Education division sold

  [1]Egghead Softwareen.wikipedia.org

  Egghead sold the division to Software Spectrum for $45 million.

• 1995

  Headquarters moved to Spokane

  [1]Egghead Softwareen.wikipedia.org

  Egghead relocated its headquarters from Issaquah to Spokane, Washington, while operating stores in 30 states.

• 1993

  Egghead Express introduced

  [1]Egghead Softwareen.wikipedia.org

  The company launched Egghead Express, an ordering and order-management software product.

• 1989

  Store network peaks at 206 locations

  [1]Egghead Softwareen.wikipedia.org

  Egghead reported 206 stores but closed 20 because of losses, inventory issues, and theft.

• 1988

  Initial public offering

  [1]Egghead Softwareen.wikipedia.org

  The company became publicly traded through an initial public offering in June.

• 1987

  Reaches 50 West Coast stores

  [1]Egghead Softwareen.wikipedia.org

  Egghead had expanded to 50 stores on the West Coast of the United States.

• 1984

  Company founded in Bellevue

  [1]Egghead Softwareen.wikipedia.org

  Victor D. Alhadeff founded Egghead Software as a single computer-software store in Bellevue, Washington.

Discount-oriented specialist retailer for packaged computer software, later repositioned as an online-only software and e-commerce business.

• Retail assortment · 1984

  Packaged computer software

  Egghead's core business was the sale of packaged computer software through specialist retail stores. Its assortment served consumers as well as business, government, and educational customers, and included the broad range of programs then needed for personal-computer use.

• Ordering software · 1993

  Egghead Express

  Released in 1993, Egghead Express was Egghead's first identified software product. It allowed customers to place and manage orders, extending the retailer's commercial infrastructure beyond in-store purchasing.

• E-commerce channel · 1998

  Egghead.com

  Egghead.com became the company's exclusive sales channel after the physical stores were closed in 1998. Following the 1999 OnSale merger, the combined company continued using the Egghead.com name until bankruptcy and the subsequent sale of the domain to Amazon.com.

• 2000

  Payment-card security incident

  After Egghead servers were compromised, the company feared that information associated with more than 3.7 million customers had been stolen. Its initial denial, followed by notification of Visa and banks, resulted in card cancellations and public criticism. Egghead later concluded that the credit-card information had not been obtained.

  Source

• 1989

  Fraud lawsuit over inventory and financial disclosures

  The founder and other top executives were sued after Egghead's stock price declined following its public offering. The allegations concerned failure to disclose material facts about the condition of the company's inventory systems and finances.

  Source

Read more

• CUE card customer program

  United States

  Egghead invited customers to register for a CUE card, described as a Customer Updates and “Eggs” program, which provided discounts and helped support repeat purchasing.

  Outcome. The program was part of Egghead's discount-retail positioning during its store-expansion period.

  Source

• 2001

  File for bankruptcy and sell the domainOther

  Background

  Egghead's online business remained under financial pressure after the OnSale merger and the 2000 security incident.

  Action taken

  The company filed for bankruptcy, pursued a proposed acquisition by Fry's Electronics, and ultimately sold the Egghead.com domain to Amazon.com after that deal failed.

  Aftermath

  Egghead ceased operating as an independent retailer.

  Source

• 1999

  Merge with OnSale.comM&A

  Background

  After moving its retail business online, Egghead sought a broader internet-commerce structure.

  Action taken

  Egghead merged with OnSale.com in a $375 million all-stock transaction and retained the Egghead.com name.

  Aftermath

  Jerry Kaplan became CEO of the combined company. The business later entered bankruptcy in 2001.

  Transaction value. $375 million (1999)

  Source

• 1998

  Close physical stores and become online-onlyStrategy

  Background

  Egghead reported losses and was operating 80 remaining stores with approximately 800 employees.

  Action taken

  Management announced the closure of every remaining store, the layoff of 600 employees, and a shift to sales through Egghead.com.

  Aftermath

  The stock price fell 18 percent when the plan was announced, although the shares later rose sharply during the dot-com boom.

  Source

• 1997

  Acquire Surplus SoftwareM&A

  Background

  Egghead was reducing its store footprint while attempting to consolidate its position in software retail.

  Action taken

  Egghead acquired competitor Surplus Software Inc. for $31.5 million.

  Aftermath

  The acquisition was followed by the decision to close all remaining physical stores and move to an online-only model.

  Acquisition price. $31.5 million (May 1997)

  Source

• 1996

  Sell the Corporate, Government & Education divisionStrategy

  Background

  Egghead was restructuring its business while its share price was around $6 and speculation about a possible takeover was circulating.

  Action taken

  The company sold the division to Software Spectrum for $45 million.

  Aftermath

  The transaction reduced Egghead's business scope and preceded further store closures and strategic retrenchment.

  Sale price. $45 million (May 1996)

  Source

1. 1Egghead Softwareen.wikipedia.org