Retailer sees big-screen magic in housing slump

NEW YORK (CNNMoney.com) -- Scott Oglum, CEO of TheaterXtreme, a niche retailer that specializes in creating actual movie theaters in homes, isn't sweating the turmoil in the housing and credit markets.

Instead, he's feeling quite optimistic about his company's sales picking up in the months ahead.

TheaterXtreme specializes in creating a "real" in-home theater for an average price of $7,000.

"It's called feathering the nest," said Oglum, referring to a trend he's seeing of homeowners upgrading the places where they currently live rather than aspiring for a McMansion."This is going to happen as housing prices slump."

The Newark, Del.-based company has already seen fast growth. In 2004, its first year in business, TheaterXtreme sold 200 home theater packages. Unit sales topped the 2,000 unit mark in less than four years. The company's total sales now are between $12 million and $14 million, Oglum said.

TheaterXtreme currently operates more than 20 stores including 5 company-owned stores and franchises in 15 states. Oglum hopes to grow its store base to about 500 stores over the next five years, "depending on the financing we get."

The packages TheaterXtreme sell convert a customer's existing room (or part of a room) into what feels like a real movie theater - complete with high-definition front-end projectors, screens, media control systems that provide online access, and even reclining theater seats.

The idea is to "create a better way for people to enjoy the home theater experience," Oglum said. "Home theaters are great for watching movies and sports and we're also seeing the systems used for gaming, browsing the Internet and watching videos on YouTube."

The average price of a setup: $7,000. Calling it a "modest" home investment, Oglum said: "We think the price is affordable to mid-income homeowners, who represent 35 percent of our customer base. Some other specialty stores sell these packages for $50,000 or more."

TheaterXtreme is able to keep costs down because most of its products are private-label or built exclusively for the retailer, said Oglum.

"All of our furniture is sourced from China, the Philippines and Vietnam. But we don't source any of our electronics from there," he said. "Our projectors are all name brands like Epson, Mitsubishi and JVC."

Oglum thinks the housing and credit woes that have pinched sales at big-box retailers like Wal-Mart (Charts, Fortune 500), Target (Charts, Fortune 500) and Best Buy (Charts, Fortune 500) won't hurt his business.

"The market for home-theater projectors is exploding, growing at 32 percent a year. We think the market size is bigger than $1 billion," Oglum said. "We're not completely immune to the housing-market situation but we are far more sheltered than other retailers."

"If we catered to the new-construction market, then yes we would be more worried," Oglum added. "But we cater to the retro home market. These are existing homes in which people have lived an average of five years."

At least one industry watcher is skeptical.

"Sure there's a market for movie theaters in homes, and it's a very healthy one," said George Whalin, CEO of Retail Management Consultants. "But other specialty stores that are offering the same concept tell me that they are very concerned about a housing downturn hurting their business."

Canton-Ma.-based Tweeter Home Entertainment Group, which recently went private after being bought by Schultze Asset Management, also sells home movie theater packages. The average price of an entery-level Tweeter customized home theater is $10,000, according to an employee at a local New Jersey store.

That's only slightly more than TheaterXtreme's average price for a package, but it includes fewer goodies. Although Tweeter's package consists of a projector, screen or flatscreen TV, speakers, surround sound and DVD/DVR as does TheaterXtreme, Tweeter's furniture options are more limited and would have to be bought separately.

"Our business also sells to homeowners who want to reinvent their home space," said Patrick Reynolds, spokesman for Tweeter Stores. "For us the market for home theaters is actually quite good despite the housing problems."

And what about competition from the big boys? Oglum said he's not worried about the possibility of Best Buy or Circuit City moving into his territory.

The home theater systems currently offered by Best Buy (Charts, Fortune 500) andCircuit City (Charts, Fortune 500)are similar to TheaterXtreme's but they include a flat-panel or tube HDTV instead of a projector and screen setup, and limited theater seating choices.

"We are in a very niche area. This is all that we do," Oglum said. "If Best Buy has one [type] of front-end projector, we have 13 different models. We do carpeting, custom woodwork panels, furniture. Best Buy does home theater installations but what we do really steps out of the installation industry."

Still, he admitted that some of TheaterXtreme locations are strategically located near a Best Buy, Circuit City or CompUSA stores.

"Any big-box retailer pulls big traffic and we can benefit from the spillover traffic," Oglum said. "We don't want everyone who comes in to buy a package, but to at least experience our store. We give people popcorn and take them on a tour," he said.

Richard Hastings, senior retail analyst with Bernard Sands, called TheaterXtreme an "interesting story."

"While I think the lower one-third of households are at risk from macroeconomic pressures, mid-income households are still relatively stable," Hastings said. "These homeowners are able to make affordable improvements to their homes."