Ovation Files for Bankruptcy Protection
Ovation'S filing for Ch. 11 protection marks the latest blow dealt CE specialty chains as they try to parry sorties onto their turf by Best Buy, Circuit City, Target, Wal-Mart and other chains. Once repositories of high-end CE gear, specialty chains now must compete with sales of flat-panel TVs at every level of distribution. CE specialty outlets also face shoppers well schooled on specs via the Internet and so less dependent on commissioned sales staffs for advice.
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“There’s just a huge shift in this market and I don’t think the old models work any more,” said Christopher Byrne, managing dir. at Vinci Group’s NHT: “It’s happening on the manufacturing side because we are increasingly becoming system solutions companies. I don’t think a standalone hi-fi store works any more.”
Best Buy’s tactic of opening Magnolia A/V “stores” within its own outlets and CompUSA plans to add Good Guys departments has raised specialty retailers’ hackles. Best Buy acquired 20-store Magnolia in 2001 and since has focused on outfitting its outlets with the specialty chain’s format. CompUSA, which bought Good Guys in 2003, recently said it was closing 43 freestanding stores, but adding departments to stores in Cal. To counter national chains’ store-within-a-store formats, CE specialty retailers now are pushing vendors for products that may offer exclusive features, said Roger Heuberger, exec. dir. at the Pro Buying Group.
Ovation, an 8-store Indianapolis-based chain founded in 1986 by Pres. Gary McCormick, filed in U.S. Bankruptcy Court, Indianapolis, due largely to sharper price competition from national chains, vendors said. Ovation began its retrenchment 18 months ago, in 2004 and 2005 closing stores in Louisville, Ky. and Lafayette, Ind. At the same time, Ovation opened 2 stores (Fort Wayne, Ind. and Cincinnati) and acquired a custom installation business.
“Extraordinary expenses” hurt Ovation’s performance and spurred vendors to tighten credit terms, sources said. The firm, which filed late Fri. for Ch. 11 status, is expected to get a court okay this week for debtor-in- possession financing that would let it begin buying merchandise cash-on-delivery, vendors said.
Recent weeks saw the chain try to recapitalize, Heuberger said. Ovation is a member of the Pro Buying Group. When a financing plan didn’t emerge, Ovation went Ch. 11, filing in advance of the 2005 Bankruptcy Reform Act that took effect Oct. 17, which has less favorable tax provisions that the old law, Heuberger said. McCormick, who also founded HiFi Buys, hadn’t returned a call seeking comment at our deadline on Wed.
Top Ovation creditors include Monster Cable ($243,000) and Klipsch Audio Technologies ($182,000), plus Denon, Sony, Definitive Technology, JL Audio and LG Electronics. Monster, among Ultimate Electronics’ largest creditors when that firm filed in Jan. for bankruptcy protection, split with Tweeter after Monster tightened credit terms. Tweeter, which closed 19 stores earlier this year, since has reported better sales. Ultimate, which sold 32 of 62 stores to Hollywood Video founder Mark Wattles in April, has begun a new promotional campaign.
As it seeks to restructure under bankruptcy protection, Ovation likely will trim its 161-member workforce, sources said. Some employees may be reassigned when their jobs are cut, but the number to be cut isn’t clear. Unaffected by the bankruptcy filing is Ovation Residential Home, which has 29 employees and works with builders.
Ovation retail staff worked “diligently” during the past 18 months to “streamline operations, develop further personnel expertise, close underperforming stores and enhance existing retail sales,” McCormick said. “Despite all of our efforts, it wasn’t enough.”