Hechinger Co. yesterday announced a massive $75 million expansion campaign to increase the company's size by nearly 50 percent, from 43 do-it-yourself stores to 63 in the next two years.
Expanding further away from its Washington base, Hechinger said it will open new stores in Ohio, New York, South Carolina, Delaware and western Pennsylvania.
To finance the rapid growth, Hechinger announced it will sell $75 million of convertible subordinated debentures. These debentures will be due in 2009 and will be underwritten by a group headed by Morgan Stanley & Co. Inc.
"By doing this expansion, we think we will be ahead of our competitors," said President John W. Hechinger. Up to now, Hechinger added, the company had limited the areas where it set up new stores because of its practice of supplying all stores from its central distribution system in Landover. That philosophy meant that new stores had to be nearby to be efficiently and rapidly stocked from the central warehouse.
Hechinger said the company is revising its operating system so that the out-of-state units will be large warehouse-style stores, able to receive stock directly from manufacturers. The first warehouse store will open in October in Raleigh, N.C.
"By shipping directly to these out-of-state stores and cutting the umbilical cord to our distribution system, we are able to move more aggressively in opening new stores," Hechinger said.
In addition to the markets in which store sites have been selected, the company also is conducting research on opening stores in Massachusetts.
At the same time, Hechinger will continue opening new stores in its existing markets, which include the Washington metropolitan area, North Carolina and eastern and central Pennsylvania. The local stores will continue to be serviced from the central warehouse.
Hechinger's announcement of its $75 million expansion plan came several months after the chain dropped plans to launch a joint venture with K mart Corp. to open a new chain of discount warehouse do-it-yourself stores across the country. The joint venture fell through because of differences in operating philosophy, both companies said.
"We are now going back to our original plan and expand on our own, which is what we planned to do before we joined with K mart," Hechinger said.
Wyatt Kash, editor of National Home Center News, said he suspects that Hechinger -- and several of its competitors who have also announced ambitious expansion plans -- are moving aggressively to open new stores to head off K mart. K mart recently acquired a Texas do-it-yourself retail chain that says it plans to open 90 new stores within the next two years. "There's a new urgency to get a toehold in the major metropolitan markets faster than the industry would have had to if K mart had stood on the sidelines," said Kash.