A Faliure of E-commerce

Egghead Software was founded in 1984 as a computer software retail company. Faced with declining revenues, in 1998, the company shifted its focus to online business, closing its retail locations and selling entirely through its egghead.com website. Egghead.com merged with online auctioneer OnSale.com in 2000 and assumed the name Egghead.com.

 

Egghead was successful from the early days, expanding from a single store in Bellevue, Washington to a 200 store chain, with locations primarily on the West Coast. Early on, the company focused on repeat business, customer service and sales integrity. Egghead easily became the premier retail vendor of software and peripherals in the United States. Egghead was hurt by a December of 2000 revelation that hackers had accessed its systems and potentially compromised customer credit card data. The company filed for bankruptcy in August of 2001. Its an example of a large sized company that failed - (but not completely since some business taken up by a larger more stable company

 

Egghead suffered a deep decline in sales recently, which forced the bankruptcy filing and asset sale, Jeff Sheahan, Egghead's chief executive, said in the statement. He added , they have investigated a number of alternatives and believe this action will allow the company to realize a value for its assets which will benefit our creditors.

Several factors had contributed to failure of Egghead. The factors are as follow:

 

A Decline in Profit Margin                                                                

Chief Executive John Fry said in a statement that Egghead executives "have done an excellent job of building a strong brand and sizable online business which enables us to move online quickly with a robust and proven site."

Egghead also filed an incomplete earnings report with the Securities and Exchange Commission on Wednesday that showed the decline in the company's sales and its tenuous cash position. In the second quarter, Egghead lost $4.7 million on $59 million in revenue. Egghead's results do not include the impairment of goodwill as a result of the bankruptcy. By the time of the filing, Egghead had just $750,000 in cash and cash equivalents.

 

Not enough capital

Egghead laid off 77 employees in March to cut expenses. Egghead's restructuring moves were the right way to go, but the company didn’t have enough capital to see them through, Sheahan told CNET News.com.

Egghead's stock has closed consistently below $1 a share since February, prompting the Nasdaq to warn Egghead in April that its stock would be delisted if it was not able to maintain the $1 per-share minimum price.

In June, Egghead executives authorized a reverse stock split as part of a strategy to avoid being delisted. Companies risk delisting if they cannot maintain a $1 minimum share price for 30 days. Egghead's stock last topped a dollar on May 2.

Start-up e-tailer Onsale.com changed its name to Egghead.com after purchasing the former brick-and-mortar software retailer in 1999. Like Onsale, which launched the first online auction site, Egghead was also a pioneer. In 1998, the company shut down all of its brick-and-mortar retail stores to focus on Internet sales.

Onsale's purchase of Egghead was one of a number of acquisitions of traditional companies by online players as their share prices swelled and as the Internet took off.

Onsale rival eBay, for instance, bought traditional auction house Butterfield & Butterfield and classic car auctioneer Kruse International in 1999.

Tide turns

However, more recently, the tide has been flowing in the other direction, with traditional companies picking up the pieces of failed dot-com companies or bringing their own struggling online operations back in-house.

Egghead handed over maintenance of its auctions to auction service company FairMarket. Egghead's Hartzell said the company has about 130 employees left, 105 of which are in Vancouver. Those employees will remain with the company through the bankruptcy and may be offered positions at Fry's after the bankruptcy proceedings have been completed.