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Ultimate’s Measured Growth Plan Works

Dave Workman, president of Wheat Ridge, Colo.-based Ultimate Electronics, knows that it is easy to confuse rapid expansion with success. To find proof, he only has to look as far as several of the chain’s Southwestern markets, where Fretter recently closed several of its Silo outlets — and wreaked the usual going-out-of-business havoc. But Workman, who runs Ultimate along with its chairman and founder Bill Pearse, sees it all as a healthy reminder. “Our goal has never been to be the biggest in the industry, just the best,” he says. “We realize you have to take a more controlled pace of expansion, and there are times you have to take time to make the thing work better rather than getting bigger.”

That philosophy explains the slow, steady growth that has marked Ultimate since its early days and still drives it today. Founded in 1968 with a single franchised Team Electronics store, it became a dedicated audio chain called SoundTrack in the early ’70s.

Since changing its name again in 1993 to Ultimate Electronics and going public, the company has plodded forward, building momentum slowly, all the while staying focused on its goal of successfully marketing, in Workman’s words, “mid-to-upscale in a ‘big box.’ ” And it has stayed the course while delivering one of the highest levels of customer service in the business and maintaining a low employee turnover rate that is the envy of the industry.

The company operated 11 outlets at the end of 1993, 14 by the end of 1994, and added four more in ’95 — bringing it to a total of 18 stores. For its past released fiscal year, ended January 31, 1995, Ultimate earned $8.2 million in operating income on $165 million in sales and netted $4.9 million. Sales per selling square foot were $1,336.

Ultimate’s most recently available results showed sales of $100.8 million through its first six months of fiscal 1996, up 73%, with comparable-store sales up 7%. Operating income was $2.6 million (up 45%), and net profit after store-opening expenses was $1.15 million, up 10%.

Ultimate’s geographic mix now includes nine stores in its home state of Colorado under the SoundTrack name and the remainder under Ultimate Electronics in Utah (Salt Lake City), Nevada (Las Vegas), New Mexico (Albuquerque), Idaho (Boise) and Oklahoma (Tulsa).

In 1995, the firm added its fourth store in the Salt Lake City area, its second in Vegas, and its first in Boise and Tulsa. For ’96, Ultimate has its eye set on one to three new stores in undisclosed Midwestern markets, and the up-sizing of three to five of its older stores in Colorado to convert them to its Ultimate Electronics format (though no decision has been made about what name those stores will bear).

The company will also move its headquarters into a new 260,000-square-foot facility in Thornton, Colo., that will house a modern 175,000-square-foot warehouse and a new flagship store.

Selling floors in the SoundTrack stores range from 5,000 to 16,700 square feet, while the Ultimate outlets average 18,000 square feet of selling space of a total 37,000 square feet.

The key to the chain’s recent success, of course, is what it does with that footage. Unlike its chief competitors — which include the big nationals such as Circuit City, Best Buy and Sears Brand Central, as well as various regionals — Ultimate Electronics sells only electronics.

There are no space-chewing appliances, and only a modest selection of “specialty” software such as laserdiscs and MiniDiscs. As a result, Ultimate displays up to twice as much CE product as the comparably sized Circuit City or Best Buy outlet.

That means there is plenty of room for promotional goods at entry-level price points, as well as the company’s bread and butter in the mid-to-upscale product. “It has big-box appeal, like Circuit City,” says Workman, “but with our mid-to-upper leaning, we have lines you’d normally associate with an independent.”

To this broad mix of goods, Ultimate adds a range of value-added services and one of the best-trained and motivated sales staffs in the business, all with the intent of making Ultimate Electronics “the Nordstrom’s of the consumer electronics industry.”

The customer service orientation seems to be working. Vendors praise the chain for its ability to move upscale goods while creating a commanding advertising presence in its markets that smaller independents can’t match. And, unlike with some large chains, manufacturers don’t shy away from giving Ultimate their better lines. Current brands carried include Mitsubishi, Sony (including Sony ES), Thomson (including GE, RCA and ProScan), Toshiba (including Toshiba Cinema), Pioneer (including Pioneer Elite), Yamaha, Polk, Bang & Olufsen, Adcom and Definitive Technology.

“They’re doing a really good job of training their salespeople and of selling and packaging home theater,” observes Steve Nickerson, Toshiba’s marketing VP for color TV. “The people on the floor are just as able to speak intelligently about video as about audio, and they break down the barrier between those product areas with their expertise and their floor structure.

“The industry has been working on that in general, but they’re just a little ahead of the others.”

Tony Yunt, Southwestern sales manager for Thomson, is quick to agree. Yunt calls Ultimate “one of the fastest growing large regional retailers in our Southwestern sales operation,” as well as “one of the top ProScan accounts in the country. They are extremely well-managed and geared toward high-end sales. And much of their success can be linked to their highly professional sales force.”

To that point, new hires to Ultimate’s commissioned sales staff get a minimum of two-and-a-half weeks of classroom training before hitting the floor. That’s a little more than average, but the real kicker, says Workman, is the 300 or so additional hours of ongoing training each associate gets annually — an amount that far exceeds most competitors. Beyond this, Workman explains that Ultimate makes it a point to look for pleasant personalities in its prospective employees — before considering their sales experience — and notes that when they find the right people, “we aren’t afraid to compensate them well.”

The result: an annual turnover rate of less than 20%, said to be remarkable for a chain of this size. “Some retail operations have 200% turnover — they flip their crews twice a year. Less than 20% is very unique, and it’s because we’re very respectful of our people and very selective of the type of people we bring in.”

Once trained, new salespeople are deployed on a floor that also seeks to differentiate Ultimate from its competitors. Despite the relative spaciousness, the stores eschew a warehouse look in favor of a more intimate, upscale feel, with more luxurious furnishings and displays.

In its current Ultimate store format there are three audio rooms, two home theater rooms (including a $50,000 state-of-the-art theater), and a TV display that boasts an unusually large selection of 45 big-screen and projection sets, displayed as a group to allow shoppers to compare.

There are also one or two eye-catching automobiles out on the floor equipped with the latest in mobile stereo and electronics, as well as displays for portable electronics, computers, and home office gear. For fiscal 1995, audio accounted for the largest share of Ultimate’s business (26%), followed by TV (23%), video (15%), home office (including computers) (16%), car stereo (12%), and other (8%).

For the record, Workman sees home theater-related categories driving more of his business in the months and years to come, including A/V furniture, where Ultimate just added high-end assembled units. Once inside an Ultimate store, customers can congregate in a central area, or break off into one of the more intimate product displays. Either way, the experience is a relatively soft sell intended to demonstrate respect for the customer.

The customer service theme is carried through with additional benefits that, Workman suggests, are also normally associated with independents. These include same-day delivery of TV sets in many markets (26-inch and larger), as well as in-store departments for repair service, car stereo installation, and even home theater installation — all manned by company employees rather than contracted operators.

But none of this means that Ultimate can’t get down and dirty with the big boys. Part of the chain’s strength comes from its hybrid personality. Although it doesn’t look to be the low-price leader, the firm aggressively markets competitive pricing in its newspaper inserts and radio advertising with a 30-day low-price guarantee and a 30-day money-back guarantee.

Says Workman: “The price matching is especially important. We think of consumers over the long run, and try not to focus on the 1% of customers who might try to cheat on you.”

So far, the balancing act is working — the company seems to do best in markets where Best Buy and Circuit City are also present, and where they represent the alternative.

Only time will tell whether the chain can sustain that strategy. But Workman is confident. “Ultimately,” says Ultimate’s president, “it really comes down to two things: the niche you occupy, and executing every little detail better than the next guy. And if you do, hopefully you can maintain a share in the marketplace, despite all the competition.”

“I’d be afraid right now if we were the typical regional,” he continues. “They’re the ones who have to answer that question, ‘What am I doing differently than the big nationals?’ If you can’t answer that question, it’s only a matter of time.” A home theater room includes a $50,000 state-of-the-art theater.Ultimate Electronics provides eye-catching vehicles on the floor equipped with the latest in mobile stereo and electronics.