Hechinger builds a defense against competition Fast-growing rival is moving into area

June 06, 1991|By Cindy Harper-Evans

Neal Kaplan's parents went to a Hechinger Home Quarters store just outside Boston recently and were so impressed with the warehouse layout, merchandise and prices that they called their son, an analyst in Richmond, Va., to tell him about their new find.

"They said, 'This is a wonderful store, you should really think about making it one of the companies you follow,' " recalls Mr. Kaplan, who had already been following Landover-based Hechinger Co., along with several other home improvement chains, for the Scott & Stringfellow brokerage house. "My parents, and a lot of people, think Home Quarters is really neat."

The only catch is that in New England, Hechinger's new Home Quarters warehouse concept basically stands alone. Traditional mom-and-pop hardware stores are the only competition, and they pale in comparison to HQ's well-stocked shelves and warehouse prices.

The same is true for the traditional Hechinger stores in the Baltimore-Washington area -- not many stores here can compete with its presence and selection of some 35,000 items.

But at a time when its earnings have been poor and the retail scene tough, Hechinger is about to face increased competition in New England, where it has five HQ stores, and, more immediately, in its own backyard, where the presence of the "traditional" Hechinger stores is strong.

Atlanta-based Home Depot, a highly successful, fast-growing chain specializing in the warehouse end of the home improvement business, will open a store in Glen Burnie June 20 -- and has plans for three more in the area. And it is an "open secret," says Mr. Kaplan, that Home Depot is looking to expand more into the Northeast.

"So, it's a question of whether they [Hechinger] look great because there is nothing else to compare them to," Mr. Kaplan said. "Will they do well on a year-over-year basis with competition?"

Hechinger is shoring up its retail operations by aggressively revamping its Hechinger stores into Home Project Centers and by using its new HQ warehouse as its expansion concept outside its Baltimore-Washington base.

Last week, the company announced an offering of 3.2 million new shares of common stock in an effort to raise $40 million to speed up the expansion and remodeling of stores.

The first Hechinger-turned-Home Project Center opened in Glen Burnie two months ago, and another opened in Southdale last weekend. Both are only a stone's throw away from where the Home Depot is scheduled to open this month.

"Is it a coincidence that the first stores Hechinger chose to make into Home Project Centers are in Glen Burnie?" asks Budd Bugatch, an analyst for Ferris, Baker Watts in Baltimore. "I don't think so."

Analysts say the new design, an emphasis on lower prices and an economy that appears to be pulling out of a recession will help Hechinger, once a star among analysts until its earnings weakened a few years ago.

"Price is the big winner now. That's what customers want," said Cornelius V. Sewell, a retailing analyst with Argus Research. "Hechinger traditionally has been less aggressive in pricing, but as competition heats up, it is becoming more competitive in that respect."

Analysts say the popularity of HQ and Home Project Centers may help Hechinger's stock to rebound.

Hechinger shares have climbed from the $7 range at the beginning of the year to a closing price of $12 yesterday in over-the-counter trading. Other home improvement chains, including Home Depot, which is trading at more than $30 a share, have seen improvements as well.

And Hechinger's first-quarter earnings, while not better than the year before, were better than analysts predicted. Earnings were $7.2 million, down 14 percent from $8.4 million in the first quarter a year ago.

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