321A West 84th Avenue
The Company strives to appeal to a wide range of customers with an emphasis on selling mid- to upscale products. The Company's larger format stores enable it to differentiate itself from its competition through a comprehensive selection of name brand consumer electronics, with an emphasis on limited distribution upscale brands, an extensive offering of customer services and multiple home theater and audio demonstration rooms. The Company believes that these factors, together with its open and uncrowded merchandise displays and its policy of matching the lowest prices of its competitors, make it an attractive alternative to appliance/electronics superstores and mass merchants selling consumer electronics.
Ultimate Electronics, Inc. is a leading specialty retailer of home entertainment and consumer electronics, mostly in the Rocky Mountain region. At the end of 1995 the company was operating 18 stores, including nine in Colorado under the trade name SoundTrack. Between the fall of 1993 and the spring of 1996 Ultimate Electronics opened nine large-format stores and relocated and expanded two others. It nearly tripled its sales during 1994 and 1995.
Pearse Electronics, 1968-93
Ultimate Electronics was founded by William Pearse, a business administration graduate of Western Michigan University, and his wife, Barbara. William Pearse was working as a management trainee at the Gates Rubber Co. before he and Barbara started a Team Electronics audio/video franchise store in Arvada, Colorado--a suburb of Denver--in 1968, with $15,000 in personal funds. This franchise was abandoned in 1974, when the retail business was renamed SoundTrack. The second SoundTrack opened in Denver in 1976. During the 1980s six more SoundTrack stores were opened in the Denver area and Colorado's Front Range: in Aurora (1983), Littleton (1984), Boulder and Thornton (1985), a second Littleton store (1986), and Colorado Springs (1989). A Fort Collins store opened in 1990. Audio-related equipment was SoundTrack's core business at this time.
The SoundTrack chain grew not only by the establishment of new stores but by the expansion of existing ones and the number of products each location carried. Pearse believed his employees, about 70 percent of whom were paid through incentive compensation, could make their own decisions and direct their own efforts without much supervision; consequently, he kept down overhead by maintaining a management team of only four. All store managers were promoted from within the company. Customer service was given the highest priority: one of the company's top executives told a reporter, "The customer will generally get through [on the telephone] quicker than you would."
Pearse Electronics was willing to spend on advertising, however, publicizing SoundTrack through humorous commercials intended to distinguish the chain from such hard-sell, price-oriented rivals as Best Buy and Fred Schmid. In 1990 the company's ads featured a hippopotamus. The following year it introduced a spokesperson/ventriloquist named Taylor Mason and his puppet, Romeo, who wore different costumes, such as a white jump suit for an Elvis Presley spoof. Interviewed in the Denver Post, an ad-agency executive handling the SoundTrack account said, "Everybody is saying they have the lowest prices in town, so after a while there's a believability gap. We're having more fun and getting across a very competitive message as well."
Pearse Electronics had net sales of $53.7 million in fiscal 1992 (the year ended January 31, 1992) and net income of $1 million. In fiscal 1993 sales and income increased to $62.6 million and $2.1 million, respectively. The company changed its name to Ultimate Electronics in August 1993 and went public in October 1993, raising nearly $16 million by selling a minority of its common stock at $8.50 a share. The Pearse family, formerly the sole owner, retained about 60 percent of the company stock after the offering, and William Pearse continued to head the company as chairman and chief executive officer. The company said it planned to use the net proceeds of the offering to finance expansion into new markets. At this time SoundTrack was specializing in middle-market-to-upscale stereo equipment, television sets, and videocassette recorders and had about 375 employees.
Ultimate Electronics, 1993-96
In the fall of 1993 two new stores opened under the Ultimate Electronics name, in Salt Lake City and Orem, Utah--the first company outlets outside Colorado. These were also the company's largest, with about 19,000 square feet in selling space, compared to between 8,000 and 17,000 square feet for the earlier ones. One advantage of locating in Utah was that the market was yet untouched by huge retailers like Best Buy and Circuit City, although Ultimate's company president pointed out "there are lots of aggressive independents with low costs that can put products out there at low prices."
As part of a new strategy, the Ultimate Electronics stores expanded the home-office and television selections found in the SoundTrack stores. They added 100 to 200 CD-ROM titles and selections from the Top 100-selling personal-computer software titles and gave increased emphasis to PC accessories. The PC lineup was increased from four to five lines, including Packard Bell and Compaq, and from 10 to 15 models. Facsimile-machine offerings were boosted from 10 to 15 models, including products from Brother International, Murata, Panasonic, and Sharp. The number of direct-view television sets up to 40 inches was expanded from 100 to 200 models, and a big-screen viewing room had a selection of 35 rear-projection sets starting at 40 inches. Each store had two home-theater rooms packed with audio/visual receivers, speakers, and other products as well as television sets, and two cars placed on the showroom floors to display car-stereo products.
Instant acceptance in Utah enabled Ultimate Electronics to end the fiscal year with net income of $3.4 million on net sales of $88.2 million. In September 1994 the company closed its Denver SoundTrack store and opened a 31,000-square-foot superstore in the city in what had been the Century 21 movie theater. It featured 200 television sets 32 inches or smaller, 40 large-screen projection televisions, a $50,000 home-entertainment system with theater seats, and an automobile displaying a dashboard-mounted TV monitor.
During 1994 Ultimate Electronics opened new stores in Murray, Utah; Albuquerque, New Mexico; and Las Vegas, Nevada. In 1995 it opened stores in Layton, Utah; Boise, Idaho; Tulsa, Oklahoma; and a second one in Las Vegas. The new stores typically incorporated five separate audio demonstration rooms, three car-stereo demonstration rooms, two demonstration cars fully equipped with the latest in mobile electronics, two to three home-theater rooms, and a wide selection of television sets, with particular emphasis on big-screen televisions. Wall-unit furniture was among the product categories added.
Opened Thanksgiving Day, 1995, the 51,700-square-foot, $4-million Tulsa location was Ultimate Electronics' biggest one yet. It had four auto sound rooms, five home-theater rooms, and at least 45 big-screen TVs. An in-house service department accommodated all products sold by Ultimate except computers (covered by a third-party service contract) and included repairs either under warranty or out of warranty.
During 1995 and 1996 Ultimate Electronics moved its two warehouses near Stapleton International Airport, its Wheat Ridge administrative offices, and its Thornton store to the abandoned 28-acre site of a former Thornton drive-in theater. Here the company built a 285,000-square-foot, $15-million complex, including a new headquarters and distribution warehouse, a service center, and a 40,300-square-foot retail superstore. The latter, which opened in April 1996, had five audio demonstration rooms, three home theaters, two cars on the showroom floor displaying the latest in mobile-audio technology, and a children's play area named "Kid City."
For the Colorado Rockies, the expansion major-league baseball team that began playing in Denver in 1993, Ultimate Electronics sponsored an advertising display in the ballpark and player appearances. Popular manager Don Baylor became a spokesperson for the chain. In 1995, and again in 1996, the company ran commercial spots of Baylor to promote its Mitsubishi television products.
Ultimate Electronics' sales increased to $165.1 million in fiscal 1995 and to $251.8 million in fiscal 1996. Net income--a record $4.9 million in 1995--dropped to $2.8 million, but this partly reflected a charge of nearly $1 million due to a change in the accounting method for preopening expenses. A decrease of comparable-store sales of two percent in fiscal 1996 compared to a 29-percent gain for such stores in fiscal 1995 was attributed to a sluggish retail environment, increased competition in the company's markets, and the opening of new stores within markets the company already served. Ultimate Electronics expected to relocate and expand five or six of its Colorado stores in 1996 and 1997 and to open one to three new stores outside Colorado.
Ultimate Electronics adopted a shareholder-rights plan in 1995 to discourage the possibility of a hostile takeover. The Pearse family owned about 46 percent of the stock in 1995. Long-term debt, chiefly to finance expansion, grew from $3.3 million at the end of fiscal 1994 to $33.7 million at the end of fiscal 1996.
Ultimate Electronics in 1995
During 1995 Ultimate Electronics was offering more than 6,000 stock-keeping units (SKUs) representing about 200 brand names, thereby carrying, it claimed, a larger selection of full-featured, high-quality products than was generally available at its competitors. Its store format emphasized mid-to-upscale products, with displays allowing customers to make extensive side-by-side product comparisons. The company also emphasized competitive pricing and offered a 60-day price guarantee.
During the fiscal year ended January 31, 1996, television accounted for 27 percent of the company's sales; audio for 23 percent; home office for 16 percent; video for 15 percent; automotive (car stereo) for 11 percent; and other products for eight percent. Sony and Mitsubishi each provided more than 10 percent of the merchandise.
Ultimate Electronics was supporting its product sales with many important customer services, including guaranteed same-day home delivery, home-theater and audio installation and design, digital-satellite-systems (DSS) installation, mobile-electronics installation, extended service contracts, and regional service centers that offered in-home and carry-in repair services. Virtually all merchandise could be taken to any of the company's stores for repair, whether or not the product was under the manufacturer's warranty or an extended-service contract. The company's sales employees were receiving a minimum of two weeks of initial intensive classroom training and later were attending in-house training sessions on an ongoing basis. About 32 percent of all fiscal 1996 sales were purchased through the company's private-label credit card or manufacturer-sponsored credit cards.
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