Ill company may die, but not its physician

Hechinger: The turnaround specialist hired to save the home improvement chain will succeed even if his mission fails, experts say.

July 22, 1999|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

It hardly seems promising: heading an ailing national chain of home improvement stores that's losing money and customers, closing stores, struggling through bankruptcy and taking a beating from the competition.

But the new executive officer who took charge of Hechinger Co. on Tuesday is likely to find the job a no-lose proposition regardless of what happens to the chain, turnaround specialists and consultants say.

If Richard J. Lynch Jr. succeeds in resurrecting the chain from bankruptcy and shoring it up financially, he'll be hailed as a marketing genius.

If he fails, well, it's not his fault, experts agree. Even in situations where analysts hold out little hope of a company comeback, the rewards for a new chief executive can far outweigh the risks of not taking the job.

"The upside is, you're inheriting someone else's problems," said Jim Singer, a principal with A. T. Kearney Inc., a international consumer and retail consultant in New York. "They can't really go much further south. The new CEO has inherited problems that were not his doing. In terms of blame or risk, he doesn't have any."

On the other hand, turning Hechinger around "would be seen as a Herculean feat, and it would be thought of very positively by the industry," he said.

Lynch, who formerly headed the Sports Authority sporting goods chain, replaced Mark R. Adams, Hechinger's chief executive since March. He faces huge hurdles in trying to stem losses at the home improvement chain, which has been losing market share to No. 1 Home Depot Inc. and No. 2 Lowe's Cos. Inc.

In Chapter 11 bankruptcy since June 11, Hechinger is closing 89 stores of its 206 stores over the next three months. Lynch declined a request for an interview yesterday.

But many who step into such roles thrive on challenges, said Mark Millman, president of Millman Search Group Inc., a national retail consultant in Lutherville.

"It's the lure of a challenge of a lifetime," Millman said, "and the incentives that must be in place."

In the case of Lynch and others in similar situations, such incentives could include salaries in the $250,000-to-$500,000 range, as well as significant stock options and bonuses of up to $1 million if the executive meets pre-determined operating results. It might include an employment agreement in case of liquidation, Millman said.

If the turnaround succeeds, "with retailing today, when you have that type of accomplishment, you're a commodity people will need over time," he said.

Anna Currence, the chief executive officer overseeing the emergence of Lorton's Crown Books from bankruptcy, got her first taste of retail turnarounds in 1991 as vice president for a Dallas chain of video rental stores.

She helped steer the chain from $1 million-a-month money-loser to moneymaker in nine months.

By the time she stepped in to head Kitchen Bazaar in March 1993, which she helped pull out of bankruptcy, "I would have paid them to [let me] do that job," she said yesterday.

"There are certain personality types that almost need to do things like this, and get tremendous satisfaction from organizing and fixing things," Currence said.

"It is incredibly satisfying when it works. What it really comes down to is the conviction you have is what makes the employees working for you believe it."

It also takes an honest assessment of assets, operations and personnel to know whether the chain or company should be saved, said Thomas McShane, president of McShane Group, a Timonium turnaround specialist.

"It's a personal achievement and satisfying to be able to save jobs and the life of an entity," McShane said.

"Ideally, there is a strong core that you can rebuild the business around. But you need to determine whether the company can be saved and need to be objective."

It often helps to bring in a new chief executive at the 11th hour, if only to ease strained relationships between the company and its lender, said Marty McKinley, president of Wells Fargo Business Credit in Minneapolis, who also chairs Turnaround Management Association, a Chicago consultant that includes lenders, attorneys and other experts.

"The people who are at the wheel of the ship that got it into the dilemma often have trouble viewing it objectively," McKinley said, while an outsider "can look at it from a rational perspective and dump some of the emotional baggage."

As for Lynch's chances with Hechinger, "There aren't any turnarounds that aren't difficult," McShane said.

"You have to define what the goals are, put the goals into an action plan and then drive real hard to get through all the obstacles, whether the goal is to turn the business around or maximize value for the stake holders [through either a sale or liquidation]."

Singer, the consultant with A. T. Kearney, says Lynch has a few factors in his favor, despite retail experts' doubts about Hechinger's viability.

Hechinger still has brand loyalty and good store locations, he said. Also, with many retail sectors becoming dominated by three retailers, Hechinger still has a chance to regroup and emerge in the No. 3 spot.

Pub Date: 7/22/99

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