A tale of two home chains Hechinger's mistake may have been to aim to be like Home Depot; It lost upscale feel, customers; In retrospect, though, no one really knows where it went wrong

When longtime Marylanders visit the hardware store, that's not how they describe it.

"Everybody says, 'Run out to Hechinger's,' " said shopper Rick Polomsky, who encountered the phrase when he moved to Catonsville from Chicago last year. " 'I've got to go to Hechinger's.' Everybody says Hechinger's."


Lately, the term has slipped from truth to idiom. "Going to Hechinger's" often means "going to Home Depot" or "going to Lowe's."

As competitors have stolen its clientele, the retail chain that defined home improvement in the Baltimore-Washington region is honored more in parlance than pocketbook.


Last week supplied the most pointed evidence yet. The Landover-based Hechinger Co. revealed that it may try to solve its problems by selling itself to another company -- for a $3-a-share price that once would have seemed ridiculous.

How a brand name that penetrated the local language came to this yields a lesson for both businesses and sociologists.

Hechinger is a prime example of the precariousness of 1990s retailing, analysts said last week. It illustrates how even the strongest redoubt can crumble before powerful mega-chains and inscrutable consumers.

The wrench in Hechinger's gearbox also demonstrates the growing economic split between the American well-off and everybody else -- and the peril to merchants who try to straddle both worlds.

Hechinger was once "the premier home center in the industry," said Kenneth M. Gassman, a retail analyst for Davenport & Co. in Richmond, Va. "In the '50s, '60s, '70s, everybody else came to their stores to see how to do it."

Founded in 1911 by Sidney Hechinger, grandfather of present Chairman and Chief Executive John Hechinger Jr., the chain had 128 stores in 24 states by 1989, earning almost $50 million that year. It had become prosperous and loved as an upscale hardware store, "the world's most unusual lumber yard," with cordon-bleu service and a big assortment of tools, housewares, fasteners, plumbing parts and paint.

Out of the South

But deep in the South, a company called Home Depot had coined a different method of hardware merchandising.


Home Depot's stores were even bigger than Hechinger's 60,000-square-foot, football-field-plus venues -- half again as big, first, then twice as big. Home Depot was generating sales to support such behemoths by catering to contractors, not just do-it-yourselfers, and shutting down smaller hardware stores across the South in the process.

Hechinger executives weren't asleep at the wheel. They saw Home Depot, saw it early, knew they had to act and did. They just made the wrong moves.

In business, catastrophes often can be blamed on one or two major missteps, obvious in retrospect. IBM let Microsoft get ownership of the software for IBM's personal computer. Food Lion fumbled the public relations ball in its tainted food scandal. Maryland National Bank made big loans to shaky developers.

"There are some situations where you can point to a major tactical error," said Donald T. Spindel, who follows Hechinger for the St. Louis investment house A. G. Edwards. "That's not the case here. I don't think it comes down to whether Hechinger did any one thing incorrect."

Hechinger executives declined to comment in detail last week, citing the confidential buyout talks.

What did they do wrong? "The short answer is: everything," said Jack D. Seibald, a retail analyst for Blackford Securities. "They've had a screwy management that has not kept its eye on the ball."


But even to Wall Street experts, many of whom were recommending its stock a few years ago, Hechinger appeared to be doing the right things, correctly.

A stalking horse

Unfamiliar with "big-box," Home Depot-style merchandising, Hechinger sought a chain that was. In the late 1980s it bought Home Quarters Warehouse, a Virginia Beach, Va.-based Home Depot clone that Hechinger left as a freestanding operation.

For the next few years, Hechinger Co. was actually two companies: a chain of traditional Hechinger stores in Virginia, Maryland and Pennsylvania; and a growing division of "HQ" warehouse outlets farther south and in the Midwest.

The formula appeared to work, for a while. HQ would be the company's growth vehicle, pushing into the North and Midwest in advance of Home Depot, supplying its shareholders the hope of ever-rising profits.

Hechinger outlets would hold the home ground, secure in 80 years of shopper loyalty, claiming in prime locations what they lacked in size. And when they could, Hechinger stores bowed to Home Depot, too, getting bigger, more like warehouses, with better assortments, lower prices, more features designed to appeal to contractors.


In the long run, it didn't work. Home Depot steadily marched into Hechinger towns and made them its own. The pattern became familiar: State-of-the-art HQ and Hechinger stores would open, pack in the shoppers and book $30 million apiece in annual sales. Then Home Depot would arrive, as it did in the Baltimore region in 1991, and swipe much of it away.

Jumbled stock

It wasn't anything obvious. And some of Home Depot's success was downright counter-intuitive. For example, Hechinger hews closely to retailing's "living room" rule, keeping its spaces

meticulously clean and well-lighted. At Home Depot, workers let cardboard cartons pile up in the aisles and merchandise jumble on the shelves.

"Look at this," said Columbia resident George Cole, pointing out some tumbleweed trash in the parking lot of Home Depot's Catonsville store last week. "You take a look at the Hechinger's in Columbia, and you don't see this. Look at this parking lot!"

But Home Depot attended to details that mattered, analysts said. Its selection of goods was often broader, its prices often better, its sales staff more numerous and knowledgeable.


A typical Home Depot store now cranks out $40 million a year in nails, pliers, power saws, drywall and lumber. Hechinger's best branches generally do $20 million or $30 million, analysts said.

Hechinger's store-for-store sales, a key measure of retailing health, have been falling for more than two years. The company hasn't made an annual profit since 1993, and it has lost more than $100 million since then.

All that time, at Hechinger's Landover headquarters, executives have sweated out their own high-stakes repair project. They merged the HQ and Hechinger administrative divisions, saving millions in operating costs. They rolled out new HQ and Hechinger prototypes -- bigger stores, some reorganized as "home project centers" with everything for a particular project in one place instead of spread through the store. They reached out to contractors.

Part of Hechinger's problem has been its size. Even with $2 billion in annual sales, it's only a fourth of Lowe's size, a tenth of Home Depot's size. That lets the mega-chains buy in bigger bulk, more cheaply. And it allows Home Depot to use profitable stores in non-Hechinger territory to subsidize price-cutting in stores on the front lines.

A target?

"It may well be they're being targeted by Home Depot or Lowe's," said Sheldon Grodsky, director of equity research for Grodsky Associates in South Orange, N.J. "They're saying, 'We're going to knock them out of business.' All of that just makes it very hard to run a competing store."


Hechinger stock kept sinking, falling to $1 a share last month from more than $15 in 1994. Rumors of an eventual bankruptcy swelled.

Last week, after various company insiders and trusts had already unloaded more than 250,000 Hechinger shares this year, the company revealed its latest possibility for salvation. It is in negotiations with an unidentified company, it said, that would buy the chain in a deal worth $3 a share in cash for shareholders.

Hechinger declined to identify the mystery suitor. But industry speculation centered on the Los Angeles buyout firm of Leonard Green & Partners, which has been trying to buy Kmart's Builders Square, another struggling home-improvement chain.

Combining Builders Square with Hechinger and bringing in new management, the thinking goes, would lend the resulting operation better buying and marketing power.

Two problem companies

Analysts aren't so sure that two problem companies make one good one.


Maybe, Gassman said, Hechinger's biggest error was trying to be like Home Depot in the first place. Hechinger was the Gucci, the Tiffany of hardware, he said, in what he admitted was Monday-morning quarterbacking.

Hechinger's strong housewares department was popular with women, who recoiled from the warehouse look. Its service drew customers who weren't especially worried about the lowest price. Its stores weren't so big that they needed contractor trade to pay the rent.

By miming Home Depot's lunch-box ambience but trying to hold its traditional, upscale clients at the same time, analysts said, Hechinger may have missed both markets and knotted a permanent kink in its hose.

Upscale and middle-class markets have diverged in recent years, as incomes for the wealthy have grown and those of Middle America have stagnated. That makes a blanket retail strategy even more problematic. Perhaps Hechinger should have stayed with the carriage trade.

"They lost all that with their rush into big-box retailing," Gassman TC said. "Had Hechinger stayed in that [former] business, maybe twisted the dials a little bit, they would have remained, as they once were, the premier home center in the industry."

It's an interpretation that makes sense to Hechinger customer Cole, a medical sales executive.


"In marketing you never develop a product or change a product because of the competition," he said. "You develop a product or change a product to meet market demand. There's a possibility that Hechinger didn't pay attention to the demand of the market."

Pub Date: 6/22/97