Hechinger files for bankruptcy protection

Competition tilts home-improvement chain based in Md.

June 12, 1999|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

Once one of the premier home-improvement chains in the country, Hechinger Co. collapsed under the weight of oppressive competition yesterday, filing for Chapter 11 bankruptcy protection and announcing it will close 89 stores -- four in Maryland.

In a filing with the U.S. Bankruptcy Court in Delaware, the company listed assets of $1.3 billion and liabilities of $1.4 billion. The chain has suffered heavy losses as its larger competitors have seized control of the booming home-improvement market.

Privately owned Hechinger previously announced it would close 34 stores by next month. Combined with the 89 announced yesterday, the once proud and prosperous company will be shutting more that half of its stores.

In the end, it will operate 117 stores in 21 states, including nine in the Baltimore area. The Largo-based company, which was founded in 1911, also operates Builders Square and Home Quarters home-improvement stores.

Of the 89 stores to be closed, four are in Maryland: in Woodlawn, Dundalk, Gaithersburg and Temple Hills.

"Filing Chapter 11 voluntarily -- among all other alternatives -- is the right way to go," said Mark R. Adams, the company's president and chief executive since March. "We're really focusing the next 90 days on putting together our plan to bring the company to a solid core of performing stores.

"What we didn't want to do is approach this a piece at a time," he added. "We needed to take a more significant action."

Adams said it is too soon to know the full impact of the closings on job losses. "Definitely wherever possible, we will transfer employees to other stores," he said.

The bankruptcy filing followed wide speculation in the industry that Hechinger could not continue to operate as it has. For its last fiscal quarter, which ended April 3, the company posted a net loss of $228.4 million, an almost sixfold increase from a year earlier.

Some analysts are skeptical that the company can successfully emerge from Chapter 11.

"It has been such a strong economy and a strong housing market, if a retailer can't survive in this environment it won't be in a position to move forward in leaner times," said Asma Usmani, an analyst with Edward Jones in St. Louis.

"Hechinger can't downsize and still expect to go up against bigger and stronger companies. I don't know how 100 stores can compete against Home Depot," added Douglas A. Gordon, an analyst with Banc of America Securities in San Francisco.

Hechinger's primary failing was its inability to keep its footing in the $150 billion home-improvement retailing industry, analysts said.

Hechinger has been contending with -- and losing customers to -- Atlanta-based industry giant Home Depot Inc., which opened its first Baltimore-area store in 1991, and more recently with No. 2 hardware chain Lowe's Cos. Inc., of North Wilkesboro, N.C.

Both chains feature warehouse-size stores with lower prices, a wider selection of products and extensive customer service.

`Ran out of breath'

"Hechinger tried to hold out as long as it could, but it finally ran out of breath," said Kurt Barnard, president of Barnard's Retail Trend Report in New Jersey.

"I remember Hechinger from back in the '70s and '80s when it was absolutely the premier home improvement company in America," he said.

Founded in 1911 by Sidney Hechinger, the company grew from a single shop to a chain of 128 stores in 24 states and the District of Columbia by the late 1980s.

It was one of the first large-scale home-improvement chains in the nation, and one of the first to build warehouse-size stores for building supplies.

"But then Home Depot came along and Lowe's came along," Barnard said. "And Hechinger kept changing its identity and its basic formula. It confused consumers, and that did not help them at all in combating the titans.

"Hechinger really lost its reason for being," he said.

Gordon, the Banc of America Securities analyst, said: "Home Depot came in with a better model. Late in the process, Hechinger tried to copy that model, but it was too late."

Even being acquired by a California buyout firm in 1997 and receiving a $700 million credit line from BankBoston Retail Finance Inc. in March could not help the company bounce back.

On Sept. 25, 1997, the Hechinger family sold the company to a Los Angeles investment firm, Leonard Green & Partners LP. Green merged Hechinger with another troubled home-improvement chain, Builders Square, but kept the company's headquarters in Largo.

The sale to Leonard Green kept Hechinger out of bankruptcy at the time, and helped move it from the fourth-largest home-improvement retailer to the third-largest. But it did little to improve the company's finances.

"Because the company was not very profitable as a stand-alone, it placed its hope in Leonard Green," said Usmani, the Edward Jones analyst. "Hechinger thought merging with Builders Square would reinvigorate sales and bring down costs, but that didn't happen."

Returning to roots

Under its reconstruction plan, Hechinger said it would convert its remaining 16 Builders Square stores into the Home Quarters format.

The company said it would focus on developing its Home Quarters stores in large markets, and Hechinger stores in smaller markets.

The Hechinger stores will return to their historical roots "as a community-based store tailored to the needs of its customers," Adams said.

Pub Date: 6/12/99

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