Ultimate Electronics will close about half its stores, exit six markets, pink-slip nearly a third of its employees, and reorganize its merchandising structure as part of a new business plan designed to help the company emerge quickly from Chapter 11 bankruptcy protection.
The ailing A/V specialty retailer may also pursue a multi-market expansion through the acquisition of as many as 1,000 Hollywood Video stores.
The strategy, detailed in a filing with the Securities and Exchange Commission, was prompted by another loan default on March 16. Ultimate's lenders agreed to extend the loan covenant providing that the company, now under a new management team lead by Hollywood Entertainment's former CEO Mark Wattles, present an action plan.
That plan calls for Ultimate to exit the Iowa, Kansas City, South Dakota, Texas and Utah markets beginning around April 9 and to complete its round of store closings by June 30. The company will continue to operate 32 stores in Arizona, Colorado, Kansas, Minnesota, St. Louis, Nevada, New Mexico and Oklahoma. Ultimate is actively seeking bids from third-party liquidators to manage the store closings, which will result in the termination of about 900 employees, as well as the elimination of about 65 headquarters positions over the next three months.
Ultimate is unable to estimate the cost of the store closings and layoffs, due to its Chapter 11 status, current financial situation and reorganization efforts, the company said.
At the same time, the chain revealed that CEO Wattles had contacted the boards of Hollywood Entertainment and its would-be acquirer, Blockbuster Inc., to express an interest in buying up to 50 percent of Hollywood Video's 2,000 stores. The video chain's stores are largely located in high-traffic strip-mall locations and, at an average of 7,500 square feet, are roughly a quarter of the size of an average Ultimate Electronics unit.
Wattles' letter to the Hollywood and Blockbuster boards prompted the resignation of Ultimate's director Bruce Giesbrecht, who succeeded Wattles as CEO of Hollywood Entertainment, and Blockbuster has since withdrawn its hostile, billion-dollar bid to acquire its video rental rival.
Word of the restructuring was first communicated by marketing VP Jim Pearse, son of founder and former chairman Bill Pearse, in an open letter to vendors.
Pearse said that the moves are being taken to maximize profitability and reduce expense, complexity and duplication of effort. He noted that the smaller baseline of stores, along with improved cash flow, will allow the company to build a foundation for future growth that includes a multi-market expansion in the near future.
The restructuring follows last month's appointment of Wattles as CEO, succeeding Dave Workman, and the hiring of seven former Hollywood Video executives to fill key management roles at the struggling A/V chain.