Hechinger chairman says chain 'lost focus' Distraction of merger, weak economy, snow blamed for losses

June 12, 1996|By Alec Matthew Klein | Alec Matthew Klein,SUN STAFF

In a candid look inward, beleaguered Hechinger Co. told shareholders at its annual meeting yesterday what few like to admit -- that the retailer is partly to blame for its own financial struggle.

"We have to look at ourselves in the mirror and admit it: We did it to ourselves," John W. Hechinger Jr., chairman and chief executive officer of the Landover-based home improvement chain, said in prepared remarks yesterday.

"As we anticipated, the merger of our Hechinger and Home Quarter operations was a major operational distraction. During this time, we were selecting the best management team to run our consolidated business. We were eliminating overlapping functions to become a more efficient company. In the process, we lost focus on our business."

But factors beyond its control also played a role, the CEO said before about 100 shareholders, officers and others in a conference hall at the Hyatt Regency in Dearborn, Mich., outside Detroit, where the retailer operates seven of its 118 stores.

After absorbing $77.6 million in losses during fiscal 1995, Hechinger said the company was hurt by this winter's blizzard and weak economic conditions, which dampened housing turnover -- factors that help determine whether do-it-yourself consumers buy Hechinger products.

What's more, Hechinger said, "We now compete with large warehouse-type competitors in over 80 percent of our markets and anticipate continued competitive incur-sions over the next few years."

Industry leader Home Depot Inc. intends to open about 480 stores before the decade's end, more than doubling the size of the chain. Lowes Cos., the nation's No. 2 home improvement chain, recently announced plans to add 60 stores this year, giving it more than 420. Meanwhile, Hechinger has not expanded in the past year and plans no new stores through the rest of 1996.

But analysts say that Hechinger's problems go beyond size, that the roots go back to the mid to late 1980s, when the company entered the "big box" derby, building bigger, brighter stores to keep up with other retailers.

"In a sense, John Hechinger Jr. is accurate because they took their eye off the ball," said analyst Kenneth M. Gassman Jr. of the Richmond, Va., investment house Davenport & Co. "Hechinger got caught up in the big box retail frenzy. They lost their edge and drifted from their core business -- upscale hardware with a high level of customer service. They became a me-too retailer."

But, Gassman added, "Now it appears they're going back to their roots."

As part of its retooling, Hechinger announced last August the merging of its two subsidiaries -- Hechinger Stores and Home Quarters Warehouse -- under one management team, which the company hopes will ultimately mean about $20 million in annual pretax savings. Since then, Hechinger has emphasized improving customer service, merchandising and marketing.

"We think these are the right steps to take," Vice President Richard S. Gross said. "We have a plan, and we're going about executing it."

To that end, the retailer has allotted $60 million to renovate many of its 118 stores.

In addition, the company has firmed up its financial base with $84 million in cash at the end of the first quarter and used just $23 million of a $200 million line of credit.

Pub Date: 6/12/96

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