Ultimate Electronics ramps up short-term expansion plan - Brief Article

DSN Retailing Today, July 23, 2001 by Laura Heller

DENVER - Never mind the troubling economy. Ultimate Electronics is going full steam ahead with its expansion efforts, as the 37-unit specialty chain has announced efforts to open as many as 13 stores in the Dallas market in the next two years, eight to 10 of which will open in 2002. Add to that the additional new market openings this year in Oklahoma City and St. Louis and three additional stores in the consumer electronics chain's existing Phoenix market, and the retailer will add nearly 22 units to its 37-store base.

Growth at this level is significant, particularly for a smaller retailer, given the current economic environment. But according to Edward McEntire, Ultimate's ceo, "We really believe now is the time to go into some of these markets as a specialist and take market share.

David Workman, president and coo, told DSN Retailing Today that early results from the chain's Phoenix stores open less than a year have been better than expected, and "We see a great opportunity with the Dallas market." A typical Ultimate Electronics store has average annual sales of approximately $12.5 million, while the Phoenix units are closer to $15 million.

The Dallas entry, one of the most competitive retail markets in the nation, is the largest and most ambitious program to date for the chain. It is already well stored with consumer electronics chains Circuit City and Best Buy. RadioShack and CompUSA call the area home, and Tweeter-plus a number of smaller, specialty retailers--operate units in the region as well.

"We do best in a Best Buy and Circuit City dominated environment," claims Workman, who estimates the area to be a $1.3 billion CE market. Ultimate, which typically carries higher-end product lines than the big national chains, competes more against independent retailers. "[They're] such a small percentage of the electronics market, and that's where we perform best," he said.

Banc of America Securities analyst Shelly Hale agrees. "Ultimate has proven it can compete against the larger competitors as it carves a differentiated niche for itself as a value-added retailer," she wrote in a recent report. "Fifty percent of the products sold at Ultimate are not offered at Best Buy and Circuit City."

Ultimate's sales skew heavily to high-priced digital products such as HDTV and flat panel TVs. In fact, Workman told analysts on a conference call in May that the retailer is well on its way to achieving its goal of selling 60 to 90 plasma TVs per month by the end of this year.

At just 29,000 sq. ft., Ultimate has opted to not carry software titles to allow more space to be devoted to big-ticket items.

A typical store carries six to seven plasma sets and approximately 50 rear projection TVs. Management recently re-evaluated its merchandise mix and has begun to pare back certain product categories, including analog camcorders and mini audio systems, to make room for emerging product categories.

"We are trying to squeeze some redundancies out of the middle," said Workman. "Basically, it's out with the old and in with the new."

New for Ultimate extends to gaming, and the retailer recently tested sales of Playstation products in its Phoenix stores. It will be rolling the program out chainwide this fall, along with approximately 150 software titles to support the gaming console. There are no plans currently to carry the soon-to-be-released products from Microsoft or Nintendo.

Other new merchandising initiatives include new fixtures and displays for home theater systems such as Digital TV and satellite, as well as improved merchandising that will group wireless communications, PDAs and portable digital products together. By fall, Workman hopes to announce broadband partnerships and begin offering both satellite and DSL services to consumers.

And Workman is looking to the digital product cycle to support store expansion of 25% to 30% annually, in spite of a sales slowdown. For the first quarter ended April 30, 2001, sales jumped 21% to $115 million from $95 million for the same period the year prior. However, comp store sales were flat for the quarter (and up against difficult comparisons of a 13% comp store gain for the year ended Jan. 31, 2000) and are expected to remain so for the rest of this year, according to Hale.

But this isn't stopping Ultimate Electronics from pushing ahead. Said Workman, "This is the beginning of a long, good growth cycle for our core business."