Home-improvement chain Hechinger Co., once among the Washington area's most prominent retailers, yesterday filed for bankruptcy reorganization after years of losses and relentless competition from rivals Home Depot and Lowe's.
The beleaguered retailer, based in Largo, said it will close 89 unprofitable stores over the next three months, effectively shedding the Builders Square operation that was combined with Hechinger two years ago. Locally, the company will close Hechinger stores in Temple Hills and Gaithersburg.
"It's a very sad day," said John Hechinger Jr., whose family sold its interest in the company in 1997 to Leonard Green & Partners, a Los Angeles investment firm. "I'm very disappointed to see that this has taken place under the course of two years."
Officials with Leonard Green did not return a phone call yesterday.
Mark Adams, Hechinger's chief executive, said the chain hopes to emerge from Chapter 11 bankruptcy reorganization at an unspecified date with a much leaner, 117-store operation and a strategy that includes converting its larger stores into HQ-Home Quarters warehouses. The smaller Hechinger stores would retain the Hechinger name and carve a niche as neighborhood home-improvement stores.
As many as 6,600 employees, including 150 in the Washington area, could lose their jobs as a result of the closings. But Adams said the company will do its best to relocate workers to other stores, particularly in its core Washington-area market.
"We're looking for the opportunity to retain talent," Adams said in an interview yesterday.
Hechinger listed $1.3 billion in assets and $1.4 billion in debts in its Chapter 11 filing in Wilmington, Del., where the company is incorporated, according to wire reports. Its largest creditors included American Stock Transfer & Trust Co., a trustee for Hechinger's bond debt, and Black & Decker Corp.
Hechinger was founded in 1911 by Sidney L. Hechinger, who hawked salvaged building materials to Washington residents from a horse-drawn wagon. He opened his first store in 1919, and the company grew to become the first of the home center chains to target the growing market of do-it-yourselfers.
Over the past several years, however, Hechinger has racked up huge losses and has struggled to keep its shoppers from flocking to its well-financed rivals. Another wave of customers has abandoned Hechinger in recent months as the retailer, strapped for cash, has had trouble stocking its shelves.
"It's too bad, but I guess that's the way everything goes these days," said Jim Rogers, a Manassas resident shopping yesterday at Hechinger's Wisconsin Avenue store.
"The cycle goes on. The little hardware stores were run out by Hechinger, and now Hechinger is run out by bigger stores," Rogers said.
In interviews yesterday, few customers happily reminisced about Hechinger. Most had clearly grown impatient with the company's problems in recent years, which included sometimes mediocre service, understocked shelves and depleted inventory.
"It's obvious they don't put anything in employee training," Fairfax dentist Steve Fassnacht said yesterday, after spending $15 on a garden hose and a 2-by-4 piece of lumber at the Hechinger store in Burke Centre in Northern Virginia. "There are good people there who are just not prepared. If I needed anything serious I'd go to Home Depot."
Dick Vida, a Woodbridge contractor shopping at the same store, said he bought the last available piece of wood for a door jamb he was building even though "it's as crooked as a snake."
"For $14.94 I ought to have some selection," he said.
While Hechinger's Adams would not provide details of the new planned format, he said the stores will have a focus "that hasn't been done in the past."
"We will play up Hechinger stores' strengths by focusing on convenience and a smaller store format that is dominant in certain key categories," he said.
The Builders Square name, however, will vanish. Leonard Green & Partners had hoped that a Builders Square-Hechinger marriage would create a much more powerful retailer, but analysts say it only created a weaker firm.
"What didn't perform is the Builders Square part of the equation," Adams said. "And our desire was to cut out the nonperformers."
Kmart Corp. officials have an intense interest in the those stores. Although the discount chain sold Builders Square to Leonard Green in 1997, it retained liability for the payments on the division's store leases.
Yesterday, Kmart announced plans to take a $230 million charge in the second quarter to reflect the possibility that it could have to take over as many as 115 locations. But only 59 Builders Square stores are on Hechinger's closing list, which means Kmart may be able to reduce the charge.
Bob Burton, Kmart's vice president of investor relations, said company officials plan to convert the Builders Square stores into Kmart stores or "sublease them as rapidly as possible."
Hechinger could have become what Home Depot is today, or it could have succeeded by sticking to its roots as an upscale community hardware store known for its customer service, industry observers said.
In any case, it tried to follow Home Depot into the "big-box" warehouse format -- and lost battle after battle in markets across the nation, said Kenneth M. Gassman Jr., an analyst with Davenport & Co. in Richmond. Although Hechinger tried to reinvent itself several times, nothing seemed to work, and its rivals continued to grab more and more market share.
"The industry is rapidly becoming a duopoly between Home Depot and (C)Lowe's," Gassman said. "A retailer like Hechinger doesn't have buying clout or marketing clout to compete against these two giants."
Hechinger illustrates the difficulties that retailers face in remaining leaders in their industries for long, said Mark Mandel, an analyst with ABN AMRO Inc., a New York brokerage.
"It takes management with a lot of focus and the experience to reinvent themselves," Mandel said. "It's easy to sit back Monday morning and say what they could have, would have, should have done."
Staff writers Kenneth Bredemeier and Shu Shin Luh contributed to this report.
LOCAL INSTITUTION - HECHINGER
Stores: Operate under the names of Hechinger, Home Quarters Warehouse and Builders Square (Builders Square name will be dropped).
Local stores that will close: Temple Hills, Gaithersburg
Employees: 28,000 (as many as 6,500, including 150 local, could lose their jobs).
Chief executive: Mark Adams
1998 revenue: $3.4 billion
1998 loss: $93 million
*acquired by Leonard Green & Partners in 1997; now a private company
SOURCE: Hechinger, staff reports
CAPTION: Miguel Melgares loads lumber yesterday outside the Hechinger store at Burke Centre. The home-improvement chain filed for bankruptcy reorganization.