Hechinger faces biggest repair project -- itself

Pioneer business in home improvement falls into sinkhole


June 20, 1999|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

In its heyday, Hechinger Co. billed itself as the world's most unusual lumberyard.

For much of the '70s and early '80s, the Maryland-based retailer gained prominence nationally by relying on warehouse-style stores coupled with attentive customer service to lure customers away from corner hardware shops.

But that was before retail powerhouses Home Depot Inc. and Lowe's Cos. Inc. began invading Hechinger's turf in Maryland and across the United States. Both have taken "big box" home improvement retailing to a new level by catering to a booming market of do-it-yourself home remodelers, offering variety, low prices and high levels of service.

Hechinger, burdened with years of losses and disillusioned shoppers weary of uneven service, finally caved in to what is fast evolving into a duopoly in the home improvement industry, retail analysts and consultants say. The company filed for Chapter 11 bankruptcy protection June 11, listing $1.3 billion in assets and $1.4 billion in liabilities with U.S. Bankruptcy Court in Delaware.

The company, which posted a $228.4 million net loss in the quarter that ended April 3, said it will start to reorganize by closing 89 stores over the next three to four months.

Analysts, however, have strong doubts about the future of the chain, which operates Hechinger, Home Quarters and Builders Square stores.

"To be honest, I don't think there's really anything they can do," said Douglas A. Gordon, an analyst with Banc of America Securities in San Francisco. "They are downsizing at a time when in order to compete, you have to be larger."

For one thing, he said, vendors who supply everything from power tools to ceiling fans typically work out exclusive deals with one or another of the big two retailers, both of which far outpace regional and even national chains in sales. Home Depot and Lowe's rank No. 1 and No. 2, with sales of $30.2 billion and $12.2 billion, respectively, according to Home Center News, a New York-based trade magazine. Hechinger ranks fourth, with 1998 sales of $3.4 billion.

"They face a very big hurdle, and that hurdle is called Home Depot and Lowe's," said Kurt Barnard, president of New Jersey-based Barnard's Retail Trend Report. "Those are powerful, giant, highly successful and well-operated retailers. Hechinger has had too many management changes, too many changes of concept."

But in an interview last week, Hechinger's top executive since March said a leaner Hechinger can emerge from Chapter 11 with a re-defined focus to operate 117 stores in 21 states.

"In prior years, the company has tried to be all things to all people in every format," said Mark Adams, president and chief executive officer. "We've come to the realization that we shouldn't do that. What we should be doing is focusing on our strengths and customers and the format that best serves them."

New formats planned

While stressing that the chain won't have its new strategy finalized until it presents creditors with a plan, Adams said the vision calls for two formats. A smaller format under the Hechinger banner would borrow from the company's roots. A larger, warehouse format under the Home Quarters banner would feature improved service and selection and a drive-through lumber department.

Hechinger plans to close most of its Builders Square stores, many of them in New York, Ohio, Colorado, Texas, Wisconsin and Florida. Hechinger had merged with the struggling Builders Square chain, a former Kmart Corp. subsidiary, after the Hechinger family sold the Hechinger company to California investment firm Leonard Green & Parters in September 1997.

Store closings will leave just 16 Builders Square stores, which will be converted to Home Quarters.

"That obviously says the part of the equation that didn't meet with success was the ability to turn the Builders Square stores around," Adams said.

Under preliminary plans, about 45 of the chain's smaller Hechinger stores -- those in the 50,000- to 65,000-square-foot range -- would retain the Hechinger name and "refocus to a more convenient and service-oriented format that focuses on serving the needs of its local community," he said.

Those stores would likely carry a core assortment of standard items to appeal to homeowners and contractors alike in departments such as hardware, tools, lumber and lawn and garden, while also trying to be the dominant retailer in categories such as paint and wallcoverings, Adams said.

That idea sounds similar to the chain's Wye River concept, one of the last efforts of the Hechinger family before the takeover by Green, said Kenneth Gassman, a retail analyst with Davenport & Co. in Richmond, Va.

At Wye River, "they sold little lumber but lots of stuff for the house," such as a large selection of bird feeders, Gassman said. "In part, Wye River was a reincarnation of some of the earlier Hechingers. That store had a lot of potential."

Converting larger stores

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