Hechinger Co.'s expansion into North Carolina raises some intriguing questions about the future course of the home improvement center chain, but most of the answers from industry observers appear to favor the decision.
Nonetheless, some analysts who follow Hechinger note that its expansion into North Carolina may be a bigger risk than was calculated by the Landover-based company.
The North Carolina markets in which Hechinger will open stores are unquestionably strong, and they offer unlimited potential for aggressive retailers. The Greensboro-Winston Salem-High Point area, for example, ranks 50th nationally in total retail sales, and the population of 842,000 has an effective buying income of $7 billion.
Not far away, the Raleigh-Durham core, which has a population of more than 500,000, ranks 77th in retail sales reported last year and effective buying income power of nearly $5 billion.
Charlotte's location about 100 miles from central North Carolina's population centers extends the distribution chain that must be put in place. Nevertheless, the Charlotte-Gastonia market is as strong as any of the others, ranking 61st in total retail sales last year.
Marketing studies done by Hechinger obviously were completed some time ago and kept under wraps. When the opportunity to pick up existing properties materialized, Hechinger was ready to seize it and announce its expansion plans.
But two variables remain to be solved, and industry observers wonder if Hechinger can pull it off unscathed.
To be sure, by stretching the distribution chain so far from its only distribution center, Hechinger may have to make some adjustments. At the same time, it will be competing with a formidable competitor -- Lowe's Companies -- in the latter's backyard.
Those two factors are question marks in the minds of some industry analysts.
Hechinger's decision to expand to North Carolina represents a sharp departure from its prior policy of limiting expansion to a 200-mile radius from its headquarters and distribution center. The company's biggest expansion program outside the Baltimore-Washington-Richmond corridor until now has been in the Philadelphia area, where it plans to operate 13 stores.
Eyebrows were raised when that decision was announced. In fact, there are still questions about the Philadelphia plan. Eliot H. Benson, vice president and director of research at Ferris & Co. Inc., applauds Hechinger's expansion in the Washington and Philadelphia markets, but he raises several questions about the North Carolina strategy.
"Yes, I have reservations about the initial expansion plan," Benson remarked. "My gut feeling is that they're taking a greater risk than ever before. They've extended themselves considerably. That's a hell of a trip down there."
"The move into North Carolina was a little surprising to us from the timing, frankly," remarked one industry source.
On the other hand, Hechinger already has the capability to ship within a 200-mile radius and should be able to support North Carolina markets, the same source added.
Still, Hechinger may have to alter its merchandising program initially if it is to be successful in North Carolina. "The key to their success in Washington has been their ability to dominate the market and their advertising," said one industry source. "Because they don't have that notoriety in North Carolina they will have to do a lot to win in those markets."
Lowe's, which has its headquarters in North Wilkesboro, N.C., traditionally had catered to small building contractors, but, in recent years has directed more than 50 percent of business to consumers.
But Hechinger believes it can transport its success as a do-it-yourself center without fear of competition from Lowe's. "My impression is that Lowe's has neglected North Carolina," remarked Hechinger Chairman Richard England.
Indeed, Hechinger's management, which has been described as "methodical, conservative and smart" by Ken Gassman Jr. of Wheat First Securities, views the North Carolina expansion as a business-as-usual decision.
"You have to go where the opportunities are," England says.
The company has all but settled on a new 400-mile limit, however, because anything greater would require another distribution center, something it doesn't plan to build for some time. In fact, not only does Hechinger plan to enlarge its Landover distribution center by 25 percent this year, but also it will add more space in two or three years.
Backhauling, already an integral part of its distribution system, will be expanded to serve the North Carolina markets. Company-owned trucks making deliveries to Hechinger stores in North Carolina will return loaded with merchandise from suppliers in that market. "The savings is so significant, we frequently change suppliers to be near our stores," England said.
It's that type of confidence that prompted one industry analyst to say of Hechinger's management: "I would be concerned if I were competing against them."