Semiconductor designers fantasize about "a clean sheet of paper." Forced to worry so much about fitting into the messy world of the tens of thousands of chips designed over the past several decades, they talk lovingly of being able to chuck it all and start from scratch. "Let me start with a clean sheet of paper," they say, "and I could really make this baby hum."

Executives face the same sort of legacy problem these days with the Internet. Many can see benefits from on-line commerce. But they're hemmed in by, in particular, sales forces and distribution systems that have been nurtured for years and that would revolt at too drastic a move on-line.

For all those who dream of clean sheets of paper, George Orban is the poster child.

A little more than a year ago, the chief executive of Egghead closed the last 80 of his 250 stores and went on-line. He morphed the company from a national chain selling only software to a Web-only company selling everything from Windows to secondhand necklaces.

If a 15-year-old company with $300 million in annual sales can become a start-up, Egghead has. Mr. Orban has even squeezed the company into one floor of a squat commercial building. In Mr. Orban's still-bare corner office, research reports pile up on the floor, and staff members frequently pop in to report the latest bit of news about sales levels or the number of pages viewed on the Web site.

"It took a lot of courage," said Richard P. Cooley, a Seattle businessman and former Egghead director. "Can you imagine going completely out of the only business you've ever been in?"
 

In many ways, Mr. Orban is just making a virtue of necessity. When he took the reins of the company in 1996, Egghead's stores were out of date, its losses were alarming, and the stock was at a record low. The board had told him he could either turn the company around or shut it down. So, while even Mr. Orban acknowledges that he's taking a risk, what choice did he have?

When he agreed to take on the challenge of saving Egghead, Mr. Orban initially considered other solutions, but he decided they wouldn't go far enough. As he combed through the company's balance sheets, one thought kept coming back to him: Egghead's rudimentary Web site was the only part of the business that was growing. In fact, even with outmoded technology and little investment, its sales had more than quintupled in 1997, to $12 million. Mr. Orban was also struck by forecasts for the growth of electronic commerce over all—the Yankee Group projects that market will total $37 billion in 2000, compared with $7.2 billion in 1998. A light bulb went on. Even though Mr. Orban had next-to-no experience selling on-line, he decided to turn Egghead Inc. into Egghead.com. It was an unexpected move for the board, who had hired Mr. Orban for his retail background, but it wasn't out of character for Mr. Orban, who has never shied away from bold new departures even if it meant ditching everything that went before. "I'm like a python," he says. "Every so often I like to sally forth and devour a deer."

In 1996, at age 50, Mr. Orban had just sallied forth into the completely new challenge of a foreign country. He had moved with his wife and two children to Aix-en-Provence, France, to immerse himself in the French culture he's been fascinated with all his life. He speaks only French to his two young children, though Mr. Orban and his wife are both native English speakers and she doesn't understand French. It's a subject Mr. Orban refuses to be drawn on—at least in English—but shows how doggedly he can pursue a goal.

It wasn't the first time Mr. Orban had changed direction in his career. After getting his bachelor's degree in chemistry from McGill University, Mr. Orban studied political science at the University of Paris. He then joined the Canadian Foreign Service, for which he did stints in Angola, Mozambique, and South America in the early 1970s. He joined Brascan, a Canadian multinational, and worked in Toronto and Brazil. Then, in the late 1970s, at a time of resurgence on Wall Street, Mr. Orban changed careers again. At age 31, he went to Columbia University to get an MBA and entered the world of deal making at Donaldson Lufkin & Jenrette.

While working at the venture capital unit of DLJ, he and a colleague ran across a six-store chain of junior-clothing department stores that needed financial and management help. The DLJ unit acquired control of the company, Ross Stores, and pushed sales to $75 million in the first year, up from $16 million before DLJ took over. "We kept the real estate, liquidated the merchandise, and transformed the business model into an off-price family apparel business," Mr. Orban says. Almost no one else had adopted that concept back in 1982, and suppliers liked having a discount outlet so they could move inventory fast, if need be. They also liked that Mr. Orban paid them in cash. Today, Ross Stores has 370 outlets and $2 billion in annual sales. Mr. Orban played such a deep role that he describes himself as a founder.

Mr. Orban also financed and briefly ran Devon Stores, a retailer that sold high-ticket consumer durables to military personnel on credit. "The theory was that people with low incomes couldn't pay cash, and most off-base merchants wouldn't give them credit," Mr. Orban says. The company was sold to Pantry Pride in 1984 for $70.6 million.

This corporate chameleon's next step, in 1987, was to start his own retail business. Mr. Orban left DLJ to start Office Mart, in Florida. Under Mr. Orban, Office Mart grew into a national chain with more than $80 million in annual sales. He and his business partners sold the company to Staples in 1992 for $30 million. One of Mr. Orban's coups at Office Mart was an agreement to open low-priced software and computer products businesses within Egghead stores—something that Mr. Orban, who had joined Egghead's board while at Devon, had urged the company to do on its own.

In 1996, it was far from certain that Mr. Orban would accept the job of running Egghead, even though he had long been an outspoken critic of the company while on its board and even though he, as an early investor, was its largest shareholder. "He was retired, and he certainly didn't need it," former board member Mr. Cooley says. "The board was worried he wouldn't take the job." But the python decided that this prey was appetizing, too, and in late 1996 Mr. Orban moved back to Spokane, Wash., with his family to take on Egghead. In February 1997, he became chief executive.

Mr. Orban spent his first year cutting costs, mostly by shuttering unprofitable stores and some of Egghead's distribution facilities. He considered implementing the big-store model that had been so successful for him elsewhere. He had constantly recommended that Egghead give up on its small, boutique stores and adopt the megastore model, which had become standard in retailing. But by the time he became chief executive, he decided it was too late. The megastore model was costly, and the market was crowded with so many big competitors that Mr. Orban concluded he could no longer make a dent.

With no solution in sight, the company posted a loss of $39.6 million on sales of $360.7 million for the year that ended July 31, 1997. Those results were down from a peak in fiscal 1992 of $15.7 million in earnings on $664 million in sales.

In January 1998, just a year after taking the reins of Egghead, Mr. Orban did the unthinkable and closed the remaining stores. He reasoned that, by virtually eliminating the overhead related to the physical stores, Egghead could become more competitive in pricing the software it sells. These days, Egghead.com is able to sell software at up to 20% less than it would have been able to in its stores.

Mr. Orban, drawing on his background in discount retailing, also saw benefits in using the Web-based model to expand Egghead's product offering. With the cost and limitations of shelf space no longer an issue, Mr. Orban says, "We have a much greater ability to aggregate products in the on-line world, where we're not constrained by the real estate of our store. In a typical store, you can sell about 4,000 products. On the Web, we're probably selling 50,000." The goal is to surpass 100,000 this year.

The Internet, Mr. Orban says, "is clearly a new frontier. It's analogous to the retailing revolution in the 1980s, when we saw the rise of the big, big store, like Costco and Office Depot." He says the Internet represents the "last phase in the evolution of retailing," offering merchants such as Egghead capabilities not possible in the brick-and-mortar world. One example is the ability of on-line stores to change displays practically on the fly. "It's like going into a Wal-Mart and seeing the shelves change as you walk by," he says.

Mr. Orban is even venturing outside Egghead's traditional core business of computer software. In mid-1997, Mr. Orban paid $31.5 million to buy Surplus Direct, an on-line auction house that primarily sells surplus merchandise ranging from outmoded computer equipment to refurbished printers. Surplus also sells goods ranging from overstock clothing to designer watches. Although Egghead doesn't break out revenues for Surplus Direct, the company says the division is growing fast. Registered bidders on its two Web sites increased more than fivefold from September 1997 to September 1998. Eventually, Egghead expects that noncomputer sales could be a quarter of its business.
 

Though the store closings shocked Egghead board members, they support the move. Karen White, a director who is a senior vice president at Oracle, says: "It's incredibly bold, and bold moves are creating winners in the electronic-commerce market."

Mr. Orban, in his enthusiasm for change, seems to have fired up Egghead's staff, as well. He has won admiration for putting in the same long hours as everyone else—an average of 80 hours a week. "I'd be in a foxhole with him anytime," says James Kalasky, Egghead's vice president of merchandising. Mr. Orban is casual in the office—wearing khakis and golf shirts—and candid, expressing his thoughts openly but managing to disagree without being disagreeable. Mr. Kalasky says the decision to close all the stores was painful for him and the rest of the executive team, but he never felt blindsided by the move.

"What impressed me about George was that he wasn't one of these typical driven managers," says V. Kasturi Rangan, a professor at Harvard Business School who is doing a case study on Egghead. "He's very patient and clear-thinking and isn't trying to run things at 100 mph all the time."

Mr. Orban's steady, nose-to-the-grindstone demeanor has helped keep the troops focused on the great challenges they face in re-creating Egghead. To succeed on the Web, Egghead needed to remake its Web image, adopting all up-to-date technology that would set the site apart in what was already becoming a crowded field. The new site, unveiled in November, has dropped Egghead's previous whiskered icon—a fixture since the 1980s—and adopted a sleeker, more modern look. The three sites—one selling software, one selling refurbished office machines, and one selling various types of surplus merchandise—all now sport similar graphic styles so they look like part of the same company. There's a fast, efficient customer-service program. Next, Mr. Orban says, the company plans to introduce avatars, which are sci-fi style images that behave on-screen much as a sales clerk would in a store.

Mr. Orban's retail experience has served him well on the Web, even outside observers say. "The new site is a retailer's site," says Terence Strom, who was running Egghead when the board voted to succeed him with Mr. Orban. "It has the customer in mind. He knows how to make it easy to shop."

But even if Egghead has a jump on things in cyberspace, it knows that the companies that blindsided it in the physical world could do the same thing again here. Direct sellers like Dell and Gateway could expand their on-line offerings, and firms like Onsale and Ebay already have a strong presence in on-line auctions.

But Mr. Orban remains convinced that the future for Egghead lies either on-line or nowhere. And, though Egghead's losses increased in fiscal 1998—to $50.2 million on sales of $293.1 million—Mr. Orban thinks it has turned the corner. With no costly stores to run and $80 million in cash, Egghead's finances are certainly looking better. And shareholders are optimistic: Its stock soared past $30 during the holiday shopping season, putting its market value at $700 million, compared with a low of just $3 a share before Mr. Orban took over. "There's no question in my mind it's a risky strategy," Harvard's Dr. Rangan says. "But they didn't have much choice. What they have going for them is a fantastic brand name." What they also have is George Orban.

Ms. Flynn is a free-lance writer in San Rafael, Calif., and a frequent contributor to the New York Times. She can be reached at ljflynn@aol.com.
 

A TOUCHY SUBJECT

It's only natural that people in the market for software, computers, and other electronic gadgets have no qualms about using their computers to buy things. But what about the scores of nonelectronic retail products, many of which seem to be moving on-line in fits and starts? How fast will their sales migrate to the Web? Or will they?

Products that shoppers don't need to touch—such as toys, CDs, books, flowers, housewares, and airline tickets—have already begun to move on-line rapidly. The problem comes with "tactile" products like clothing, which customers generally do want to see in person and even try on. The quality of images on most Web sites tends to be low, making it hard to see colors, fabric textures, and other details. As anyone who has shopped for apparel from a catalog knows, it's often hit-or-miss when trying to guess which size to order.

But clever companies are finding ways to surmount these hurdles. A female shopper visiting the Lands' End site can quickly create a virtual body double, based on her measurements. The shopper can then go into a virtual dressing room and view the electronic model from any angle, in various combinations of items, in a whole range of colors and patterns. The technology for these three-dimensional images will only improve. And it's already spreading: The Gap's new Web site also offers 3-D views of merchandise.

Meanwhile, the trend toward casual attire has made it easier for some people to skip fitting rooms altogether, according to Kate Delhagen, director of on-line retail strategies at Forrester Research. Today's shoppers tend to replenish supplies of tried-and-true blue jeans and sweaters with more of the same.

"High fashion is at the other end," she adds. "It's in their best interest to get you in the stores to touch the silk and touch the cashmere."

That may help to explain why high-end retailers like Saks Fifth Avenue have been reluctant to establish a virtual presence. But they may have to make some accommodations to on-line shoppers. One big retailer, which asked to remain anonymous, says customers ignored the fact that there is no place for them to submit orders on the company's Web site—and began e-mailing orders. The orders, running at about $4 million annually, are growing 10% a month.