The Ultimate Boondoggle?What Happened to Ultimate Electronics?
This period of rapid expansion between 2000 and 2004, most observers say, was Ultimate's undoing. In that time, it more than doubled its store count (from 31 to 65) and ran up serious debt. With the exception of its Thornton store, all of its locations are leased, and observers say many of those leases, along with the overhead of running such large stores, became albatrosses. Some observers also say Ultimate over-stored certain markets.
Sales nearly doubled between fiscal 2000 ($385 million) and fiscal 2004 ($712.9 million), but the increases almost directly corresponded, year-by-year, with store openings. A more revelatory statistic, net income, peaked at $14.6 million in fiscal 2001, when expansion began in earnest, declined to $12 million in 2002 and $6.3 million in 2003, and became a $16 million net loss in 2004. In fiscal 2004, seven new stores opened, but total sales increased by only one percent, as existing stores sold nine percent less than they had in 2003. Ultimate cited numerous difficulties: an ineffective TV ad campaign, price compression in key categories, slowing demand in established categories, low consumer confidence, competitive pressures, a dilution of skilled personnel due to expansion and an information systems debacle.
"Realistically, there was a tremendous amount of expansion," says Sandy Gross, co-founder of loudspeaker manufacturer Definitive Technology, which was acquired by Directed Electronics last fall; Gross now serves as president of Directed's Home Audio Division. Definitive was listed in Ultimate's January bankruptcy filing as one of Ultimate's largest creditors, owed over $1 million.