Ultimate's Ultimate Fate

In one of the sadder tales in consumer electronics over the past decade, Ultimate Electronics, the fine value-added retailer that emerged out of Colorado and helped found the PRO Group, as of this writing is facing liquidation.

Of course Ultimate's volume will be absorbed by existing retailers, but the industry can ill-afford to lose a chain that at its best knew how to “sell up” and provide real customer service vs. just dwelling in the netherworld of commodities. In the process, the industry also loses the chain's long-time merchandising whiz who eventually became its president and then, in 2003, its CEO, Dave Workman.

But the seeds of Ultimate's decline and demise can be traced back more than four years ago when it embarked on an ill-fated expansion. Ultimate overextended itself by more than doubling its store count to 65 units in 14 states, opening stores in St. Louis; Las Vegas; Oklahoma City; Kansas City, Mo.; Phoenix; and the Dallas area.

The soft economy hurt Ultimate, and everyone else, but bad leases, employee recruitment problems, a terrible MIS changeover and efforts by Best Buy and Wal-Mart to go upscale were said to be the seeds of its destruction.

By the time founder/CEO of Hollywood Entertainment Mark Wattles entered the picture in January, many industry observers were holding their collective breaths, hoping that this entrepreneur would have the resources and new ideas to get the company out of Chapter 11 protection quickly, close unprofitable locations, and get back to its more-profitable roots in Colorado.

As it turns out, Wattles, who replaced Workman, closed 30 stores, fired 900 employees and said he wanted to buy some of his old Hollywood Video locations. But the bottom line is that Ultimate's locations are being liquidated because no one, including the new CEO, who already invested $10 million of his own money into the chain, was willing to finance the company as an ongoing concern.

Then the other shoe dropped. Some are speculating that the store auction may be a maneuver by Wattles to buy back stores and resume operations with a clean slate. Will Ultimate, in the words of Mitsubishi's Max Wasinger, “return like a phoenix, rising from the ashes”?

Wattles was reportedly last seen visiting stores of his soon to be ex-PRO Group members around the country asking questions. We should know in the coming days what all this may mean, and find out what the PRO Group thinks about this at the organization's meeting next week. But it is a sad way for a venerable electronics chain to exit the industry if in fact this is Ultimate's end.

No matter how this turns out this is another cautionary tale for consumer electronics retailers and custom installers too. Even though we are in the fifth year (at least) of the digital revolution where many CE categories are more complicated and more profitable than ever before, the guys in the middle are getting squeezed.

The nationals, especially Best Buy with its consumer centricity and Magnolia Audio Video efforts, and Wal-Mart with its flat panel assortment, are trying to go more upscale. Small independents, custom installers and even small appliance/electronics stores are providing more service, installation and consumer education than ever before.

The retailers that continue to get hurt are those regional chains in the middle, much larger than the independents, but too small to go toe-to-toe with the nationals. When they try to over-expand without proper resources they do so at their own peril, no matter the expertise of the executives at headquarters.