John Hechinger Jr. wants to talk about Hechinger Co.
He wants to talk about change and he wants to talk about growth. He wants to talk about innovation and attention to customers. He wants to talk about the future of one of the Baltimore-Washington region's premier companies, a powerhouse in home improvement stores.
He does not want to talk about Home Depot Inc. That's not why the president and chief executive officer of Hechinger agreed to be interviewed at his Landover headquarters this month.
But for Mr. Hechinger there's no escaping it. Whenever he wants to talk about Hechinger, people ask him about Home Depot. Analysts can't discuss the company for more than a minute without comparing Hechinger with Home Depot and Mr. Hechinger with Bernard Marcus, the charismatic chairman of the Atlanta-based company.
And no wonder. Home Depot is fast becoming a retail legend, and Mr. Marcus is widely considered one of America's best corporate leaders.
But Mr. Hechinger has his own story to tell.
After a serious downturn in late 1990 and early 1991, the 117-store Hechinger Co. seems to be getting back on track. No longer just a Baltimore-Washington regional company, the company racked up 1992 sales of $1.6 billion with stores open or planned in most of the states east of the Mississippi.
The company posted respectable earnings of $26 million for the fiscal year that ended Feb. 1, 1992, 12 percent more than in 1991. And Hechinger is jettisoning its 1960s image of "The World's Most Unusual Lumber Yards" and is changing its formats to meet the challenges of the 1990s.
"We are a company on the move," Mr. Hechinger said. "We have a lot of exciting things going on."
Most analysts say Mr. Hechinger has made no obvious mistakes since he took over from his father, John Hechinger Sr., as chief executive officer in 1990. Few expressed any criticism of the earnest, reserved and boyishly handsome young CEO, who, at 42, bears his legacy of family wealth and power with quiet modesty.
However, even people who follow Hechinger closely say they don't know much about John Hechinger Jr. When his father was in charge and the son was chief operating officer, the younger Hechinger kept a low profile. Since he became CEO, he hasn't raised it much.
"You heard of him very little until he became boss," said Cornelius Sewell, an analyst with Argus Research in New York. In recent years, Mr. Sewell said, Hechinger "has kept its head down" and has done less than its chief rivals to court investors or analysts.
One of the questions analysts would like Mr. Hechinger to answer involves the basic identity of the company he heads: Will the Hechinger Co. become a full-fledged national player?
In his recent interview, Mr. Hechinger's answer was ambiguous. "I wouldn't categorize it as a national or a regional," he said.
By contrast, Atlanta-based Home Depot's ambitions ring out like a rebel yell.
"I can't tell that we'll be in all 50 states but we fully intend to be a national company," said Home Depot spokesman Lonnie Fogel. He said Home Depot probably will have 533 stores by the end of 1996 and about 1,000 by the end of the decade.
The 178-store chain has already seized the No. 1 spot in the market, even though it operates in only 15 states. In a highly fragmented home improvement industry, where even the leader holds only a 5 percent share of the market, its growth potential is enormous. Alex. Brown & Sons analyst Christopher E. Vroom has predicted that Home Depot will grow to $25 billion in sales by the end of the decade from $5.1 billion in fiscal 1991 by "steamrolling the competition."
But Hechinger is not just sitting back and letting Home Depot have its way. Hechinger plans to open 14 of its Home Quarters warehouse stores this year -- in many cases stealing a march on Home Depot in the race to enter such new markets as St. Louis, Louisville, Ky., and Cincinnati.
The 33-store Home Quarters chain, which already has a strong presence in the Southeast and New England, is unfamiliar to shoppers in the Baltimore-Washington area. But according to Mr. Hechinger, the warehouse format will be the company's "primary growth vehicle" during the 1990s.
The Home Quarters format has been described as a clone of Home Depot's warehouses -- but a very good one. "If you're color-blind, you can't see the difference," said Neal Kaplan, vice president of Richmond-based Scott & Stringfellow.
As a result, Hechinger might be least vulnerable to Home Depot in its newer markets, where Home Quarters is taking root. In Baltimore and Washington, the company's response is limited because it is locked into dozens of existing locations -- most of them too small to convert to the powerful warehouse format.
Meanwhile, tangible evidence of Home Depot's aggressiveness can be found in Glen Burnie and White Marsh, where the market-leading chain opened two of its cavernous warehouse stores last year. Two more Home Depots are scheduled to open by next spring, in Catonsville and at Perring Plaza in Baltimore County.
Hechinger has counterattacked in the Baltimore-Washington area with a conversion program that has transformed 11 of its 78 traditional stores into high-service Home Project Centers for the serious do-it-yourselfer. Mr. Hechinger said the centers have been "overwhelmingly successful."
The Home Project Centers generally contain about 60,000 square feet, compared with 100,000 or so for a Home Depot or Home Quarters. Products are grouped around the most common types of do-it-yourself projects, such as kitchens, bathrooms and decks, and each service area is staffed by experts who can guide a customer through the project from start to finish, Mr. Hechinger said.
Mr. Hechinger said prices at the company's Home Project Centers are significantly lower than those at older, conventional Hechinger stores.
The Home Projects Center format has received mixed reviews from analysts.
To Mr. Kaplan at Scott and Stringfellow, it's an efficient use of limited space -- "like warehouses in a smaller box." To Legg Mason analyst Michael Mead, it's a "cost-effective" use of its present locations but not a particularly impressive format.
"To me it tries to squeeze too much product into too limited a space," he said. "Relative to Home Depot, I don't think it makes a good presentation."
To Mr. Hechinger, such comparisons are odious, especially when they involve that Atlanta company whose name he prefers not to pronounce.
"We listen to what the customer says, and what our customers have said to us is they like the experience they are having in that store," Mr. Hechinger said. "Since our competitor has opened in Glen Burnie, our business is up 40 percent in that store."
Since the Glen Burnie store adopted the new format, the company has continued to refine the Home Project Center format. New Home Project Centers in Annapolis and Leesburg, Va., have added such project categories as gardening-landscaping and home decor. Mr. Hechinger said the company expects to complete 10 more Home Project Center conversions this year. No more traditional Hechinger stores will be built.
Most analysts give Home Depot a wide edge in buying power and bargain pricing, but Mr. Hechinger said his company will have no trouble meeting the competition.
"We have tremendous buying power in our marketplace," he said. "We're buying in a way that we're confident that nobody's buying it for less than we are."
Alex. Brown analyst Christopher E. Vroom disagrees. "Generally speaking, Hechinger's cost structure has got to become much more efficient to compete with Home Depot," he said. "They don't have the same buying power as Home Depot, which happens to be three times bigger."
Mr. Vroom also doubts whether Hechinger's corporate culture is equipped to keep up with Home Depot, which is known for the decentralized, innovative, entrepreneurial spirit fostered by Mr. Marcus.
"The management at Hechinger has done a good job, but they need to be increasingly vigilant about encouraging change at the unit level, and if they don't they'll be in trouble," Mr. Vroom said.
Such doubts have contributed to the relative weakness of Hechinger's stock, which has been trading about equal to the company's book value of $12.14. Meanwhile, Mr. Mead said, Home Depot's stock has been trading at about eight times book value. Hechinger stock closed Friday at $11.50, while Home Depot closed at $61.625.
Mr. Mead, who believes Home Depot is the "better" company, doesn't think it is eight times better. Even though he is projecting a decline in Hechinger's earnings to 75 cents a share in fiscal 1994 from 90 cents this year and 66 cents last year because of Home Depot's inroads in Baltimore-Washington, he rates Hechinger stock as the better buy.
Mr. Kaplan is even more emphatic. He's recommending Hechinger stock over Home Depot's. "You look at what the market is valuing Home Depot for -- it's just a ridiculous number," he said.
"I'm not convinced Hechinger is going to roll over and play dead," he added. "I think they have a good, competitive product."
That's certainly the way Mr. Hechinger sees it. He points to "a significant turnaround" in Hechinger's performance since early 1991, improvements in the company's distribution system and strong consumer acceptance of its new formats.
But these successes are not enough to make Mr. Hechinger complacent.
"We must never fall in the trap of thinking we've arrived," he said. "It'll be an environment where change is the order of the day. Every day we've got to wake up and think how are we going to change to get better."
Meanwhile, he said, he's not going to spend his time worrying about Home Depot or any other competitor.
"What we're really focused on and driven by is what the customer wants," he said, "because it's a real mistake for a company to respond and react to a competitor and what they're doing.
MA "You cannot run this business by looking over your shoulder."