Ultimate Electronics Poised to Liquidate, Close 46 Stores

Ultimate Electronics is seeking liquidation, which would set 46 stores loose into a saturated retail real estate market, providing openings for expansion-minded regional CE chains, industry officials said. The chain filed a motion late Friday seeking to liquidate. U.S. Bankruptcy Court Judge Mary Walrath in Wilmington, Del., is expected to consider the request at a hearing Friday.

Averaging 30,000-35,000 square feet, Ultimate locations would appear to fit best with those of Hhgregg, which would gain access to the Northeast as well as Colorado and Arizona, said industry executives we canvassed for reaction. But Hhgregg, with 40 stores already planned for this year, isn’t likely to consider Ultimate locations until 2012, industry officials said. Ultimate stores ranged in size from 14,456 and 15,000 square feet in Burnsville and Minnetonka, Minn., to 42,460 and 40,047 square feet in Greenfield, Wis., and Tigard, Ore. Two other retailers said to have expansion plans -- Fry’s Electronics and Nebraska Furniture Mart -- typically seek larger locations, industry officials said.

Although R.C. Wiley might seem a candidate for Ultimate’s Denver-area locations, including its headquarters and warehouse in Thornton, Colo., the company doesn’t appear interested in challenging American Furniture’s hold on the Denver furniture market, industry officials said. It was “common knowledge” that Ultimate owner Mark Wattles was “pitching the chain to anyone that would listen” to avoid filing for bankruptcy, sources close to the chain said.

Ultimate’s move from filing for bankruptcy protection in January to seeking liquidation this month resulted largely from failing to get needed funding and inventory, according to bankruptcy court documents. Ultimate owed GE Capital $64.8 million, and the lender was unwilling to allow the chain to use cash collateral to buy new inventory, Ultimate CEO Bruce Giesbrecht said in court documents. The retailer said it also couldn’t get debtor-in-possession financing. It suffered a “significant loss” from operations in the 11 months ended Dec. 31 and lost vendor support for providing merchandise, court documents said. Many vendors halted shipments to Ultimate just days before the retailer filed for bankruptcy. Ultimate is seeking to have Gordon Bros. Retail Partners and Hilco Merchants Resources run liquidation sales, court documents said.

Ultimate’s downfall resulted partly from its rapid expansion, and the company didn’t distinguish itself from larger rivals such as Best Buy, industry officials said. Remodeled and new stores looked like Best Buy’s, industry officials said. And Ultimate waged a battle to establish itself as a low-price purveyor of CE products without the structure to support it, industry officials said.

Wattles bought 32 Ultimate stores out of bankruptcy in 2005, but didn’t begin rapid expansion until last year when the chain began opening stores in Upstate New York and Massachusetts. “Wattles wasn’t satisfied with tuning the operation and taking a long run on it,” a source close to the chain said. “Wattles’ motivation from the get go was to mass it up as quick as he could” and sell it. “To make the money, he needed to make he took undue risk and he tried to make it too big, too fast,” the source said. “You can never go out with a strategy of having the lowest price unless you are structurally set up to have the lowest-cost operation. They didn’t have a low-cost operation.”