Egghead Software has just handed local economic development professionals a plum unlike anything they’ve had before - the relocated corporate headquarters of a company with national name recognition.
Fleeing the high costs of the Puget Sound region, Egghead announced Wednesday it will yank up its roots and bring its headquarters across the Cascades from Issaquah.
The move will eliminate 250 jobs there, and combined with the operations Egghead has already shifted here since January, will bring its Spokane employment to 500.
“This is the largest Seattle-based relocation in our history,” Bob Cooper, president of the Spokane Area Economic Development Council said Wednesday.
“We are really excited about what this means for new jobs, and for Spokane’s reputation as a good place to have a corporation headquartered.”
Cooper said the Egghead name will be a valuable asset in the recruitment of other companies to Spokane.
“We recently had another major Puget Sound company with a national reputation call us and ask why Egghead had moved some of its operations over here,” Cooper said. “This will help us get through doors we have not traditionally been able to get through.”
For Egghead the decision to move across the state mostly came down to costs.
“We believe the move to Spokane will result in improved customer service and lower overall operating expenses,” Ron Smith, an Egghead vice president who has directed the relocation project, said in a news release issued Wednesday. “At the same time, Spokane is one of the most livable cities with a stable and dependable work force.”
Egghead is a software retailer with 160 stores in 30 states. The company had phenomenal success in the 1980s, but along with much of the rest of the worldwide computer industry, suffered reversals during the first part of this decade.
When Terence M. Strom was hired as president and chief executive officer two years ago, he was the company’s fourth CEO in a year.
Three years ago, Egghead earned $15 million and its stock hit $29 a share. In fiscal 1994, the company lost $500,000 on sales of $778 million, and its stock hit a low of $7.50.
Strom’s management team turned that around in fiscal 1995 with earnings of $2.7 million on sales of $862 million. Egghead stock closed at $13.62 Wednesday, up 25 cents.
A part of the long-term turnaround strategy was consolidation and cost cutting. And that’s where Spokane came into the picture.
In December 1994, the company announced it would close 10 regional sales and service centers and consolidate those operations in Spokane, initially employing 130 people.
When the company acquired a 115,000-square-foot building, roughly twice the space Egghead needed for the operations it described, rumors began to circulate that more jobs would be shifted to Spokane.
In May, Egghead announced the closure of mail order operations in Kalispell, Mont., and credit and inside sales departments in Issaquah. The shift of those operations to Spokane brought the local job count to 335, and the speculation shifted to Egghead leaving Issaquah altogether.
Wednesday’s news release said the move here is expected to be completed in six months.
Cooper said he believed the decision evolved as Egghead gained experience in the community.
“There was a good reaction when the first wave of employees was hired,” Cooper said, “and then after the second wave, their people were saying, ‘the labor pool is so fantastic and the costs are so much less, there’s no reason not to be doing more business over here.”’
The 250 employees affected by the headquarters move will be “encouraged to apply for relocation to Spokane.” Smith said the company will provide employees who cannot move to Spokane with a separation package including severance pay.
Most of Egghead’s previous jobs here have gone to local people.
Longtime Spokane economic observer Phil Kuharski says that whether Seattle people move here, or the new jobs go to local people, the local economic effect will be about the same in the long run.
“And it’s all very positive, no matter how you cut it,” said Kuharski, who is vice president of investments at Prudential Securities.
He said usually only 40 to 60 percent of current employees stay with a company when it relocates. And the relocation from Seattle to Spokane might be complicated by a soft Seattle real estate market.
While economists anticipate longterm benefits from Egghead’s move, they won’t rewrite their short-term projections for local economic performance, Kuharski said.
The local housing market, for example, sagged during the first half of the year. Most projections, Kuharski’s included, call for a rebound in the second half.
“This will just make us feel more comfortable about our original estimates,” he said.
John Mitchell, chief economist for Portland-based U.S. Bank, said Egghead’s relocation is more proof of the growing strength of the Inland Northwest economy.
“Egghead is the classic example of the company that’s footloose in the sense that they can be anywhere,” Mitchell said. “They have the locational freedom to pursue a lower-cost environment.”
Mitchell sees it as a continuation of the trend initiated in the early 1980s when The Boeing Co. and Seafirst Bank relocated 300-to-400-job operations from Puget Sound to Spokane.
But he said one significant aspect that sets the Egghead move apart from the others is Spokane’s acquisition of a corporate headquarters. That might have some bonuses for the local economy, because many corporations seek deeper involvement in the communities in which they are based.
, DataTimes ILLUSTRATION: Graphic: Egghead’s earnings