EGGHEAD CLOSING HALF ITS STORES IN BIG SHAKEUP : SOFTWARE DEALER TO LAY OFF 800.

Byline: Dave McNary Daily News Staff Writer

Egghead Inc. announced Friday it will close nearly half of its 156 computer software stores, including a dozen in Los Angeles County, to focus on its more profitable and larger outlets.

The closures, which will take effect within a few days, include a quartet of San Fernando Valley stores in Chatsworth, Glendale, North Hollywood and Tarzana. Egghead will leave two stores in the county - one in Pasadena and the other in Los Angeles - while shuttering four outlets in San Diego County, three in Orange County and one in Riverside County.

In all, Egghead will shut 77 stores and eliminate 800 of its 1,800 jobs. It also announced that Chief Executive Terry Strom and two senior vice presidents had resigned and the company will take a $30 million charge for its fourth quarter ended March 29 to cover costs of store closings and layoffs.

The moves come amid the success of larger-format stores such as CompUSA and Fry's Electronics and customers buying more software through mail order and over the Internet. Egghead is switching to larger stores that sell more computers and will beef up its Internet software business.

Spokesman Bob Sundmacher said that the stores being closed were not profitable and had less than 5,000 square feet. Egghead Chairman George Orban said the chain's larger stores had posted ``encouraging'' results in the third quarter ended Dec. 28.

Egghead on Friday reported third-quarter earnings of $1.5 million, or 9 cents a share, compared with a loss of $1.1 million from continuing operations in the year-earlier period. Sales fell 6 percent to $113.2 million and stores open in both periods posting an 8 percent decline. The 14 new-format stores posted sales gains of 18 percent.

Egghead said it plans to open 15 of its new, larger stores this year. The reorganization is expected to cut costs for distribution and headquarters operations to $16 million from an expected $35 million in fiscal 1997.

Jack Kyser, an economist with the Los Angeles Economic Development, said Egghead's problems stem from the evolution of the software selling business from a ``boutique'' business into a commodities operation.

``Egghead has been eaten alive by larger retailers using heavy discounts on popular items to lure customers in to buy high-margin merchandise such as computers, because the name of the game is to get people through the door,'' he said. ``Egghead has been mostly selling software, and their stores in this region were not that well located.''

Kyser said software retailers have borrowed the concept from supermarkets of taking a loss on an item, such as tuna fish, in order to lure customers into stores.

``Software retailing is a very competitive, very dynamic area,'' said James Sanders, a researcher with the Software Publishers Association, based in Washington, D.C. ``The volume sold at retail is still pretty good. It's just that some merchandising strategies work and some don't.''

Market researcher PC Data, of Reston, Va., estimates that U.S. retail sales of software rose 15 percent last year to nearly $4.6 billion while unit sales rose 18 percent, indicating price cutting by producers and retailers.

Shares of Egghead dropped 62.5 cents to $5.375, representing a 60 percent drop in price since June, when the issue traded at $13.625.

Retailing in the computer business has seen players shift in recent months. Tandy Corp. decided late last year to shutter its Incredible Universe chain of superstores to focus on its Radio Shack operations. One of Egghead's rivals, NeoStar Retail Group Inc., the parent of Babbage's and Software Etc., filed for bankruptcy protection last September and sold 450 software stores to the chairman of Barnes & Noble Inc. and closed an additional 200.

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PHOTO Egghead Software on Ventura Boulevard in Tarzana is one of four Valley stores that will close within days, the company announced.

Bob Halvorsen/Daily News