Egghead's a pioneer, that's no yolk

When US analysts 'warmly greet' any announcement which is so radical it has only a fifty-fifty chance of success, it's time to lock the doors, put on the TV and hide until you sober up. And if you find yourself agreeing wholeheartedly, it's time to sit back and take stock.

The temptation to follow an analyst down a blind alley was dumped long ago by all self-respecting business persons with a love of their home, pets, money and high-end faulty laptops. But the US is slightly different.

I n the past, I have evangelised about the use of the internet and the slow grasp of its possibilities by all save the most far-sighted UK distributors.

But I was stunned by Egghead Computer's plans to shut its 80 remaining stores, close its Sacremento distribution centre, and launch an unhampered assault on the internet.

A reported loss of $6.6 million this quarter obviously concentrated the directors' minds wonderfully. But what an inspiring move to jump headlong into e-commerce in such an enthusiastic way.

Or is it? Early last year, the pundits were predicting the demise of Egghead in the ruthless US retail market. As US consumer and corporate buyers became more sophisticated, buying from a more diverse range of sources, Egghead and its competitors became dependant on too small a range of products.

Its new virtual stores will initially concentrate on a small range of software. George Outram, chairman and chief executive of Egghead, has said the decision was made because the internet is offering triple-digit growth.

Egghead seems to be relying on the well-reported emergence of new products which are pulling more US PC users onto the internet. Almost 50 per cent of US homes and 20 per cent of European homes have a PC.

So the market is there, and the rapid progress of satellite communications, cable infrastructure and burgeoning mobile phone usage seems to bear out what the pundits have been saying about the next wave of digital communications converging on the internet.

But if this seemingly brave launch into the unknown is just a last desperate attempt by a financially stricken company to stay afloat, and it fails, it may have long-term consequences for the future of e-commerce. Who follows pioneers in failure?

Eight hundred of Egghead's 1,000 employees will go. These are pretty savage cuts and other industries will be looking at these figures with alarm. Egghead has set an ambitious turnover target of $300 million in its second year, and hopes to be in profit by year three.

However, the company has an ace up its sleeve - a brand which can be exploited to tempt shoppers into its online world and attract investment on the back of what others may see as a desperate move. The other imponderable is how much it will have to spend on marketing the site.

Just a pity the analysts are howling in the stands. Encouragement like that Egghead can do without.