Hechinger Co., once one of the Washington area's most prominent homegrown retailers, said yesterday that it will close all of its stores after concluding there was no way out of bankruptcy protection.
"Unfortunately, it is clear that continued losses and stiff competition have made it highly unlikely that a traditional reorganization would be possible," Richard J. Lynch Jr., Hechinger's chief executive, said in a statement.
After 88 years of trying to build its business, the long-beleaguered, Largo-based chain of home improvement stores will waste little time shutting down. It will start going-out-of-business sales immediately, with plans to close all outlets by Christmas.
The Hechinger family gave up trying to compete with the likes of Home Depot Inc. and Lowe's Cos. two years ago. The family sold the company for $507 million two years ago to Leonard Green & Partners, a Los Angeles investment firm that tried to make a go of it by combining the company with another ailing retail chain, Kmart Corp.'s Builders Square division.
The gambit didn't work. Hechinger filed for Chapter 11 bankruptcy protection from creditors in June after racking up losses and failing to make a $4.7 million interest payment on its debt.
Hechinger has struggled to survive at a time when others are thriving. America is in the midst of a real estate boom that has millions of contractors and do-it-yourselfers fixing up newly purchased homes.
On weekends, customers once flocked to Hechinger stores. Now, they complain the retailer's financial woes have left the shelves bare of tools and parts, giving them no choice but to switch allegiances.
"The bags are open, things aren't priced," said handyman Bill Drake as he prepared to leave the Hechinger store in Alexandria for the nearby Home Depot outlet. "They've got inch-and-a-half pipe but not inch-and-a-quarter. And they've got inch-and-a-quarter fittings, but not inch-and-a-half."
Hechinger has been in the process of closing 89 underperforming stores, mostly Builders Square centers in the Midwest. The company hoped that sales at its remaining 117 stores would improve more dramatically, which has not happened. And with the colder, lower-sales months fast approaching, executives decided the company had little chance of succeeding.
"If we had been going into the springtime as opposed to going into winter, I think things could have been different," Hechinger President Donald T. Stallings said in a telephone interview.
Even though bad news had been stacking up for years, the decision to liquidate was last-minute. On Wednesday, stacks of empty Federal Express boxes still lined the conference room of Hechinger's headquarters in Prince George's County. Employees had not yet stuffed them with announcements of its planned demise.
"We were talking to Federal Express officials . . . about the latest time frame we could have the information sent to our 117 stores," Stallings said. "There was a chance . . . this wasn't going to happen."
Hechinger has been a part of the Washington retail landscape since 1911, when Sidney Hechinger began hawking scrap materials from a horse-drawn wagon. He opened his first store in the District in 1919.
The family-owned business gradually grew to become the first major home improvement chain in the nation. "This was once the premium home improvement chain by which Wall Street measured every other chain," said Kenneth M. Gassman Jr., a retail analyst with Davenport & Co. in Richmond.
Under the Hechinger family, employees and customers say they felt a close attachment to the company. The retailer once sent flowers to the homes of workers when one of their family members died.
Filling his cart with mums at Hechinger's Tenleytown store, customer Joe Gatling said he had grown up with the retailer and was now worried about what would happen when it leaves the community. Hechinger, he said, once gave the First Baptist Church of Glen Arden a low price on an old Hechinger building to help the church get established.
"Hechinger's has always been involved in community projects," he said. "I want to know what Home Depot is going to do as far as community development."
By the early '90s, it became clear that the Hechinger family had underestimated the voracity of Home Depot and Lowe's, which were dotting the nation with their warehouse-style stores. Even in Hechinger's core Washington market, the two rivals have managed to swipe valuable market share.
It is unclear how much Hechinger's current owners will lose on the liquidation. Leonard Green & Partners did not return telephone calls for comment yesterday and often does not return calls to reporters or the bond analyst community.
"There is so little information," said Andrew Lipman, a bond analyst with Schroder & Co.
Investors who bought the $332 million in bonds when they were first issued by Hechinger lost a bundle. The bonds are trading for 10 cents on the dollar. Kmart also is taking a hit. Although the discount chain sold Builders Square, smart landlords weren't about to turn over those leases to a struggling retailer like Hechinger. Consequently, Kmart retained liability for the payments on the Builders Square leases. It has already taken an after-tax charge of $230 million on the assumption that Hechinger would go out of business.
Until yesterday, Hechinger executives had been publicly optimistic about the company's chances of reinventing itself and becoming a viable retailer. But the company has had trouble retaining key employees and is now on its third chief executive in less than a year.
It also has alienated many Hechinger employees. In an earlier round of store closings, Hechinger promised severance packages and vacation pay to employees who agreed to work through liquidation sales. After its bankruptcy filing, however, the retailer said it could not pay up.
A bankruptcy judge last month approved a $6.3 million retention package for Hechinger employees. The company has proposed that new chief executive Lynch and other top managers receive bonuses this fall and next year totaling up to 61 percent of their salaries.
The company's demise over the last several years has been a source of embarrassment to the Hechinger family, which still lives in the Washington area.
Yesterday afternoon, John Hechinger Sr. pondered whether the family should have taken its name away in 1997. "Would that have changed the sadness?" he asked. "I doubt it."
Staff writers Ann O'Hanlon, Amy Joyce and Yuki Noguchi contributed to this report.
The Rise and Fall
1911: Sidney Hechinger opens a wrecking and salvage business.
1919: Sidney Hechinger opens his first hardware store at Sixth and C streets SW in the District.
1958: Sidney Hechinger dies, leaving a seven-store do-it-yourself-home repair retail chain. His son, John W. Hechinger, and son-in-law, Richard England, take up the reins.
1972: Hechinger, with 15 stores, goes public.
Mid-1970s: While many of its competitors struggle with declining sales, Hechinger's are increasing as it expands its inventory.
1980: Hechinger has 27 stores.
1983: Hechinger opens two stores in North Carolina, its first outside the D.C. area. The typical Hechinger store averages 500,000 customers a year.
1988: Hechinger makes two acquisitions: the retail division of Triangle Building Supplies & Lumber Co. For $27 million; and Home Quarters Warehouse for $71 million.
1990: Hechinger launches a major expansion program as Home Depot begins to claim market share.
1994: Hechinger closes 14 HQ stores in North and South Carolina that were unable to compete with Lowe's and Home Depot.
1997: Hechinger is sold to Leonard Green & Partners, which combined it with Kmart's Buildings Square division.
June 1999: Hechinger announces it has filed for Chapter 11 bankruptcy protection.
Yesterday: Hechinger announces it will close its last stores.
SOURCES: International Directory of Company Histories, news reports