Consumer electronics retailer Ultimate Electronics (NASDAQ:ULTE), which operates mostly in the West and Southwest, was hit hard yesterday when the company reduced its third-quarter outlook. So far, sales are down 10% year over year for the quarter, and the company had expected better when it reported Q2 results, when revenues were up in the first half.

Companies like Ultimate Electronics hope to find a niche just above "mass-market" Circuit City (NYSE:CC) and Best Buy (NYSE:BBY). Rivals include Tweeter (NASDAQ:TWTR) -- which operates mostly in the East and Southeast -- and West Coaster Good Guys (NASDAQ:GGUY), the latter of which is set to merge with CompUSA.

It's a game strategy: Apart from Best Buy and Circuit City, you have also to contend with Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) on the low- to middle-end. Theoretically at least, you can offer selection, competitive pricing, and better service than the "big boys," and succeed if you can gain sufficient scale. Considering the size, scale and marketing power of the competition, however, it's clearly an uphill battle -- as today's news illustrates.

The company, for its part, is battling. Like Tweeter and Good Guys, it's out of the PC business -- probably a good long-term move. Moreover, among the problems cited in its Q3 release, difficulty integrating new computer systems, which hurt sales, will almost certainly disappear in future quarters. The main challenge now, however, won't: Going into the key holiday season, Ultimate Electronics must spend to get store traffic and build its brand as it expands.

But, that's the plan. (Earlier this year, the company further bolstered its name by announcing plans to rebrand its seven-store Audio King operation, based in Minneapolis, with its corporate banner -- ending a nearly 50-year tradition.) Till, while customers may root for upstarts like Ultimate Electronics, the marketplace is making things difficult.

So are investors. The shares are down nearly 50% these last 12 months. Can Ultimate Electronics turn it around? Talk it over on our Ultimate Electronics discussion board.

Dave Marino-Nachison can be reached at dmarnach@fool.com.