Tweeter — The Hi-Fi Specialist That Rolled Up Its Rivals and Its Own Debt

Tweeter was a specialty retailer of high-end home audio and video, founded near Boston University in 1972, and on December 3, 2008 it closed all its remaining stores, fired its last 600 employees, and converted a second bankruptcy into a Chapter 7 liquidation. For most of its life it was a regional New England success built on the opposite of the big-box pitch: knowledgeable salespeople, performance gear, custom installation, and a customer who wanted to be advised rather than merely sold to. Then, beginning in 1996, it tried to become a national chain by buying other people’s regional hi-fi stores — and the roll-up that made it big was the same roll-up that made it fragile.

Through a string of acquisitions, Tweeter assembled a coast-to-coast collection of beloved local brands — Bryn Mawr Stereo in the mid-Atlantic, HiFi Buys in Atlanta, DOW Stereo/Video and others in California, United Audio in Chicago, and, most expensively, Sound Advice in Florida for about $150 million in 2001. It went public on NASDAQ in 1998 and reached roughly 177 stores and about $796 million in revenue by 2002, operating under a patchwork of retained nameplates. The strategy assumed that a federation of premium audio specialists could be welded into a single national operator. It mostly proved that integration is harder than acquisition.

The market then moved against the specialist’s entire reason to exist. The high-margin business — projection televisions, separate-component audio, the carefully demonstrated home theater — was overtaken by the flat-panel television, a product the big boxes sold in volume at falling prices. As Best Buy, Circuit City, and Walmart turned flat panels into a price-war commodity, the premium showroom’s margins compressed from both directions: lower prices on the category that now drove traffic, and a customer who no longer needed the demonstration. A company carrying roll-up debt and a national cost base met a category whose economics had inverted.

Tweeter filed for Chapter 11 in June 2007, was sold to Schultze Asset Management at auction for about $38 million — a quarter of what it had paid for Sound Advice alone — and limped on as Tweeter Opco. The reprieve lasted into late 2008, when a second Chapter 11 in November gave way within a month to liquidation. The premium hi-fi chain, having spent the 1990s buying up the regional specialists who might have shared its fate, took them all down with it.

Incredible Universe — The 185,000-Square-Foot Store Too Big to Make Money

Incredible Universe was the largest, loudest, and most expensive bet that the electronics-superstore era ever made — and it lasted barely five years. Launched in 1992 by Tandy Corporation, the parent of RadioShack, it was a chain of consumer-electronics megastores so enormous that a single location ran to roughly 185,000 square feet of sales floor and warehouse and stocked something like 85,000 items. The concept, conceived by Tandy chief executive John V. Roach, was “shopertainment”: part store, part theme park, with a central rotunda and stage, banks of televisions, karaoke, a “Kids Universe” play area, and staff borrowed from Disney’s vocabulary — departments were “scenes,” employees were “cast members,” shoppers were “guests.” By late 1995 there were about 17 of them. On December 30, 1996, Tandy announced it would close or sell every one, and the chain was effectively defunct by March 31, 1997.

The problem was not that customers disliked Incredible Universe. The problem was arithmetic. A store that big cost an enormous amount to build, stock, staff, and light, and it had to do extraordinary sales volume just to cover its own overhead — let alone turn a profit. By analysts’ reckoning the stores lost about $90 million in 1996 alone, and only six of the seventeen were ever consistently profitable. The format was a spectacle that could not pay for itself.

What killed Incredible Universe was overexpansion in the most literal, per-store sense of the word: each store was simply too big and too costly to be profitable, and the chain rolled the format out faster than the economics could justify. It arrived just as Best Buy and Circuit City were perfecting a leaner, cheaper big-box model that delivered most of the selection without the rotunda, the karaoke, or the day-care. The customer could get the television without paying, in higher prices and thinner margins, for the theme park around it.

The afterlife is neat and slightly ironic: Tandy sold six of the profitable Incredible Universe stores to Fry’s Electronics in 1996 — a chain that would itself build a cult on wildly themed megastores and then, decades later, collapse for related reasons. Tandy retreated to its core, kept its roughly 6,800 RadioShack stores, and never attempted anything on that scale again.