In need of repair Struggling chain: Hechinger, once the leader among home-improvement chains, has faltered against competition and a changing economy.

November 05, 1995|By Alec Matthew Klein | Alec Matthew Klein,SUN STAFF

He could have been just another customer in the Hechinger hardware store in Laurel, an unassuming man of 45 in a sports jacket, olive slacks and an open-neck button-down striding down the aisle.

When a sales lady casually offered some help, he demurred but didn't mention that he was chairman and chief executive officer of the 118-store chain bearing his family name.

John W. Hechinger Jr. wasn't shopping that day. But he could have used a hand.

Once the darling of home improvement retailing, Landover-based Hechinger Co. is in a tailspin: Sales have ebbed for seven months, Hechinger stock has been trading in the $4 range after reaching as high as $13 less than nine months ago and its rating on senior unsecured debt has been downgraded to BB-minus -- "junk" grade in Wall Street parlance.

What's more, competitors continue to carve up market share and blanket the country: Industry leader Home Depot Inc. of Atlanta projects more than 95 new stores in 1996 and North Carolina-based Lowe's Cos., the No. 2 player, expects to build 50. Meanwhile, Hechinger plans to add one new store next year and five in 1997.

"They're between a rock and a hard place," said Kenneth Lucas, an analyst with Johnston, Lemon & Co. Inc. in Washington. "Their strategy is dictated by the market place. They can't force consumers to spend, and it's not legal for them to bomb Home Depot and Lowe's stores, so they can't stop them in their store expansions."

But the situation isn't so extreme. Hechinger has the muscle to ride through a rough cycle: Its book value -- assets minus liabilities -- remains above $11 per share. Moreover, the retailer held $100 million in cash, $200 million in unfinanced real estate and $50 million in unused credit at the end of July.

Hechinger has money. And it's looking to save more -- about $20 million pre-tax annually -- by cutting costs, trimming the payroll and consolidating operations.

"Frankly, I think the company has made the right decisions for the business," Mr. Hechinger said. "We're making the tough calls, we're putting our egos aside."

They've had to. Something hasn't been working lately.

The stores -- both the Hechinger Home Project Centers and Home Quarters Warehouses -- are big, the size of 50 row houses combined. The merchandise is inexpensive, backed by the guaranteed lowest prices in town. And the goods are plentiful, offering everything from mulch to marble chips, lumber to lawn fertilizer.

Yet this could just as easily describe Home Depot, or Lowe's. Like Hechinger, they build big boxes with wide aisles and bright lighting. All three retailers stock hardware to the rafters. Even more, each will not only match their competitors' prices but knock off another 10 percent.

So why are there 59 cars in the Hechinger store parking lot in Glen Burnie on a recent fall day, while 145 vehicles pack Home Depot just 1.2 miles away?

"I don't know," said 44-year-old stage-hand Frank McGee of Baltimore County, emerging from Hechinger with caulk and lime pellets. "To me, both stores are very similar."

It's the same question that Hechinger, and others, are asking.

No quick fixes

There appears to be no quick fix, analysts say. Forces out of Hechinger's reach are at work.

Like the economy. Housing turnover has been weak. Retailing has been weaker. The home improvement sector has been among the weakest of all. Sales in stores open at least a year, a crucial gauge of performance because it factors out new stores, fell 13 percent in September at Hechinger, 5 percent at Lowe's and 10 percent at Builders Square, a division of Michigan-based Kmart Corp. Home Depot does not report monthly sales, but its second-quarter earnings, 45 cents per share, fell below Wall Street's expections.

No one has been left unscathed. But as Mr. Hechinger acknowledged, "Hechinger is overachieving in this regard."

The company can't take all the credit: Housing has been particularly weak in the Baltimore-Washington region -- Hechinger's core market -- because of federal cutbacks and the fear of more to come. Hechinger's spiral also has been skewed somewhat by comparisons with Home Depot and Lowe's, both of which have bolstered their bottom-line with rapid store openings. Competitive incursions on Hechinger turf -- 4 million .. square feet since 1992 -- have only exacerbated the retailer's weakened position.

"If somebody opens (a store) across the street, they're going to take some business," Mr. Hechinger said. "You can gnash your teeth about it, but they just are."

The grab for position and power is like the home improvement version of the feudal days. It's a fragmented market -- the top 10 chains wield only about 28 percent of an industry that reaps an estimated $133 billion in annual U.S. sales. And it's still shaking out.

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