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The Big Picture

REVENUE$4.9 million, for nine months ended March 31, 2007 (includes sales from corporate stores only and franchising fees)
NUMBER OF STORES14 locations (nine franchises, five company-owned), with 11 additional franchise territories sold
AREAS OF OPERATION10 states, including Delaware, Virginia, Michigan and Arkansas

Scott Oglum, a former computer retailer, and founder, chairman and CEO of Theater Xtreme, wants to take the complexity and expense out of buying a home-theater system. And by home theater, Oglum doesn’t mean a supersized TV or flat-panel model. Instead, he deals in professionally designed and installed large-screen, front-projection home-cinema systems.

Not too long ago, customized home theaters were largely the realm of high-end audio/video dealer stores. Costing anywhere from $20,000 to $200,000 or more, the systems were targeted to upper-income consumers. But with Theater Xtreme, Scott Oglum is out to change the equation and make high-quality home theater an affordable treat for middle-income home owners. Falling prices for projectors and other equipment, combined with consumers’ increased interest in entertainment media and home-enhancement projects, are giving his company increased momentum as it moves forward.

Oglum opened Theater Xtreme in 2003. He took the company public in 2007, with plans to grow it into a national brand. Chain Store Age executive editor Marianne Wilson talked with Oglum about the business.

Chain Store Age: How did you come up with the idea for Theater Xtreme?

Oglum: As the price of equipment started to drop, I saw a real gap in the marketplace, between big-box stores, which had started selling individual components, and the high-end retailers selling expensive theater systems. There was nobody in the middle, no one selling affordable, customized home-theater packages to middle-income consumers. That’s the niche.

CSA: Is the overall market for home theater growing?

Oglum: Yes. Consumers are always looking for better experiences, and home cinema offers exactly that. Plus, the market has made some significant strides in that the quality has improved and the prices have dropped. Theater Xtreme is well-positioned to take advantage of these trends by offering consumers one of the most affordable and complete home-theater experiences they will find anywhere. Our differentiated products—all of which are designed to complement one another—give us a real competitive advantage.

CSA: Tell us more about the concept.

Oglum: We design, sell and install large-format, front-projection home-cinema systems. Unlike big-box retailers that emphasize single products or individual components, Theater Xtreme offers a complete package that allows for an in-home movie-theater experience. We also sell complementary interior decor items, including furniture.

CSA: What does the package include?

Oglum: It includes the video and audio components as well as the design and installation. We offer five basic packages, which allows us to meet a variety of needs and budgets. Each package can be modified with accessories, ranging from wall units to theater-style seating. We now have 11 styles of seats that we sell under our private RowOne brand.

CSA: What is the price range?

Oglum: The packages range on average from $5,000 (for the system with the 80-in. screen) to $15,000 (123-in. screen). But our average sale is around $7,000.

CSA: Does Theater Xtreme sell brand names?

Oglum: Our packages are a blend of brand-name and factory-direct products. We have relationships with a number of equipment manufacturers, which is one of the ways we keep our prices in line. We source most of the non-electronic items used in our systems and brand them ourselves. But our speakers are all brand names.

CSA: How are the stores set up?

Oglum: As an entertainment experience. We want customers to have fun at Theater Xtreme. But we also want to make things as easy as possible for them. So the different theater packages are showcased in cinema showrooms that allow visitors a preview of what they might experience at home, right down to the seating. Basically, the customer can “try the room on” and decide which one best fits his needs.

CSA: How big are the stores?

Oglum: They run about 3,000 sq. ft. to 4,000 sq. ft. on average. Our stores really don’t have any inventory. Approximately 80% of our sales are home installations of complete theater-room packages.

CSA: Is the business very service-intensive?

Oglum: Yes. We’re selling a total solution and it requires a personal approach. We call our sales associates design consultants because their main job is to help customers design their own customized home theater.

First-time customers are taken on a tour of the various rooms by one of our associates—we don’t like people to wander around on their own. Afterward, the associate sits down with the guest in the design center and, using our automated technology, sketches out the installation for the customer and gives him a quote.

CSA: What is Theater Xtreme’s conversion rate?

Oglum: One in 10 people who visit our stores eventually ends up buying a system.

CSA: What’s your biggest challenge?

Oglum: Building consumer awareness. Many consumers still don’t understand the concept of home theater. Also, when people visit our stores, they are often shocked that these type of systems are available at these prices. So we are trying to educate people that home theater can be affordable.

CSA: What is your ideal location?

Oglum: Lifestyle centers and power centers. Prime strip centers with a good tenant mix are also great.

CSA: Who is your biggest competitor?

Oglum: The main competition comes from the high-end, custom marketplace, whose products tend to be significantly more expensive than ours. The big-box stores, such as Best Buy, are not in the packaged business. But there is no look-alike retailer or national chain in our particular market niche.

CSA: What is Theater Xtreme’s long-term goal?

Oglum: To be the largest specialty retailer of home-theater systems. We think the market could easily support 300 to 500 stores nationwide.

CSA: Theater Xtreme operates both corporate-owned and franchised stores. Will that strategy stay in place going forward?

Oglum: Yes. We plan to expand through a combination of franchised and corporate-owned stores. The main reason we went into franchising is that it allows a company to spread out faster. As a first-to-market retailer, that was important to us.

CSA: How is the business doing?

Oglum: Great. The corporate stores did just under $5 million for the first nine months of our current fiscal year. (The company won’t reveal sales of the franchised units.) Overall, this product is on a very nice growth path. We think the movie-theater-at-home business is going to grow dramatically during th

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