Egghead Software formally completed the move of its corporate headquarters from Issaquah to Spokane last week when it transferred its mainframe computers from its old location near Seattle.
“We will shut the doors on that building Tuesday,” said Kurt Conklin, Egghead’s vice president of human resources.
A handful of people will continue to work for the company in the Puget Sound area “supporting some information systems type of projects until June,” he said.
But all the essential elements of the move are complete, with equipment and about 500 employees in Spokane.
Terence M. Strom, Egghead’s president and chief executive officer, described the move as essential to the future prosperity, and perhaps even the survival, of the company.
In recent interviews, Strom explained that the pressures of competition and the nature of the software industry itself have driven profit margins down dramatically over the past three years.
So in order to survive, software retailers are faced with the challenge of cost reductions at every turn.
“When you lose three points of margin over a two-and-a-half-year period,” Strom said, “that’s very severe.”
And Egghead’s move to Spokane was all about reducing cost structures enough to allow the company to compete with its competition.
Now, Strom says, Egghead’s competitors will soon be in the position of having to make their own cost structure adjustments to compete with Egghead.
Egghead was founded in Seattle in 1984. Using tiny retail outlets as its sales format, the company grew rapidly until about 1990, peaking at about 210 retail outlets nationwide.
At that point, though, the emerging ‘superstore’ retail format began to offer stiff competition by getting into the software sales business.
So Egghead had to retrench and consider its future. The company has begun the process of shifting to a much larger store as its retail format, stocking both software and some high-end hardware products. It has opened one such “new format” store in Spokane.
As its retail business developed, the company also discovered a direct sales market to school districts, government agencies and corporations. That area has evolved to represent about half of Egghead’s sales.
The company has suffered losses in recent quarters, partly because it has had to digest the cost of moving, but also because, Strom says, the direct sales business was so badly disrupted by the move.
“What we underestimated,” he said, “was the cost of the disruption to our normal business. And we dramatically underestimated that.”
As competing retailers saw Egghead’s direct sales business blossom, they got into that market as well.
And while Egghead serviced the business with about 40 different little calling centers around the country, its competitors created large single-site call centers that cost less to operate.
That’s how the whole move to Spokane began. Egghead was looking for a place to create a single calling center.
By moving the whole company to a low-cost environment, Strom hopes Egghead leap-frogged over the competition in a dramatic way.
But in the process of getting there, the company has paid a significant price.
“The whole move to Spokane was pretty disruptive,” Strom said. “We created about 500 jobs over here. And we did it in period of time between Jan 16. last year, and Oct. 20. What most corporations would plan over 10 years we did in a year.
“I’ve never worked so hard in my life as I have in the last three years,” Strom concluded.
The cost of change is extraordinarily high, both financially and in terms of human effort.
“But its over with.”
And now it’s someone else’s turn to play catch-up.
, DataTimes ILLUSTRATION: Photo