The Ultimate Boondoggle?What Happened to Ultimate Electronics?
Other issues adversely affected Ultimate. A botched IT system implementation wrought unspeakable havoc on its inventories and supply chain during the crucial 2003 holiday season. The situation was so bad that, according to Rocky Mountain News, Ultimate mailed apology letters to every customer in its database the next spring. "It cost the company and the shareholders a lot of money," says McKinley, "and it cost them credibility in the marketplace. I'm sure it damaged customer relationships, in that they couldn't get the products and the service they wanted, when they wanted it. It got to the point where you weren't having full truckloads leave the distribution center; you weren't having stores actually receive the product they had ordered. There were huge stock-out issues in stores. That's what sort of cracked the stock initially. It was really, really a bad situation."
Those huge stores needed product to fill space. Ultimate sold PCs (since discontinued), DVDs and other mass-market products to attract traffic and compete with big boxes. In the process, it diluted its competitive advantage.
Steve Baumgarten, research analyst for Pittsburgh-based investment firm Parker/Hunter, who, like McKinley, followed the company until recently, cites competitive pressures as the main thorn in Ultimate's side, but doesn't discount self-inflicted wounds. "Not differentiating yourselves from the competition is the fault of management," he says. "So they have to take some of that blame, but obviously, CE is a very competitive environment. Their strategy of adding product in their stores, like DVD software, lessened the value of the brand, which was targeted more towards higher-end customers. [It's more difficult] to sell high-end product [when] you have a lot of products for mainstream customers in there as well. They did a poor job of differentiating themselves from some of the mainstream competition out there.