Hechinger Company

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Hechinger Company

3500 Pennsy Drive
Landover, Maryland 20785
U.S.A.
(301) 341-1000
Fax: (301) 925-3912

Public Company
Incorporated: 1959 as Hechinger Company
Employees: 20,000
Sales: $2.45 billion
Stock Exchanges: NASDAQ
SICs: 5251 Hardware Stores; 5211 Lumber and Other
Building Materials; 5261 Retail Nurseries and Garden
Stores; 5231 Paint, Glass and Wallpaper Stores

One of the leading retailers in the do-it-yourself industry, Hechinger Company is also one of the industry pioneers. The company sold home repair products in warehouse-size stores long before that retail format became the industry norm, and has expanded its presence from the Washington, D.C., area where it originated, to reach markets throughout the eastern half of the United States. Through two subsidiaries, Hechinger Stores Company and Home Quarters Warehouse, Inc., Hechinger operated 119 stores in 21 states and the District of Columbia in 1995.

The business that became a 119-store home hardware and garden giant began as a wrecking and salvage business in 1911, when the patriarch of the Hechinger family, Sidney L. Hechinger, a former civil engineer, began tearing down old buildings in Washington, D.C. Hechinger had an entrepreneurial approach to demolition. When Hechinger demolished a building, he demolished it piecemeal, removing anything of value from the structure to sell to customers directly from the demolition site. Hechinger removed nails from lumber, chiseled mortar from bricks, melted cast-iron pipe, and took anything else he could find to amass the Hechinger Company’s first inventory.

Shortly after razing his first building, Hechinger began receiving requests from his customers for particular parts and specifically sized parts, requests he often was not able to meet with the limited inventory he had on hand. For Hechinger it was an early lesson in maintaining an inventory of sufficient breadth, a lesson which would lead to the enormously extensive inventories that underpinned the Hechinger Company’s success. Hechinger’s inventory grew as he began purchasing new materials in small quantities to compensate for what he lacked in secondhand materials.

New materials, of course, cost more, but to Hechinger’s reported surprise, many of his customers opted for the higher-priced, new materials rather than the cheaper used materials and soon demand for the new outpaced demand for the old. As a result, Hechinger purchased more and more new materials, something that was much easier to do than tearing down buildings and gleaning pipes, bricks, nails, and whatever else from the resultant rubble. Nevertheless, Hechinger continued to sort through debris, selling the old and the new, for eight years after starting his business. During this period, his business had no permanent address; Hechinger moved from demolition site to demolition site, and his customers followed.

This all changed in 1919, when Hechinger opened his first store at Sixth and C Streets, near the nation’s capitol in southwest Washington, D.C. With the opening of the first store, Hechinger formally entered the retail industry, a business that would employ and enrich three generations of Hechingers and lead to a proliferation of Hechinger Company stores throughout the century. To be sure, the opening of the Sixth and C Street store represented a genuine milestone in the company’s history. But the first defining moment in the story of Hechinger Company’s development occurred five years later, in 1924, when Sidney Hechinger pinpointed the type of clientele that would carry Hechinger stores to the top of their industry. Hechinger noticed that along with the expected building contractors who frequented his store, a considerable proportion of his customers were homeowners intent on refurbishing and remodeling their homes themselves. These customers represented what would later represent the do-it-yourself market, a niche of the larger building supply market that would expand enormously in the coming decades and fuel the Hechinger Company’s growth.

From 1924 forward, Hechinger catered to the do-it-yourself customer exclusively, operating under a “no wholesale, no discount” business philosophy that spawned the Hechinger Company’s trademark figures “Harry and Harriet Homeowner” and represented the distinctive quality separating the company’s stores from the competition. Hechinger realized two chief advantages over his competitors. Oriented toward amateur, do-it-yourself customers, Hechinger Company stores were less intimidating to homeowners wishing to repair or remodel their residences themselves. Equally as important, however, were the economic benefits afforded by excluding particular types of customers from the company’s customer base. Typically, home center stores like Hechinger sold not only to do-it-yourselfers but to building contractors and industrial/government customers as well, customers that added to a store’s sales volume, but left it exposed to the capaciousness of the construction market. When construction activity waned, those stores catering to professional builders fell victim to the cyclical nature of the market they relied on for a percentage of their sales. Conversely, when economic conditions soured, the Hechinger Company’s business usually picked up, since homeowners were more likely to fix their homes themselves rather than hiring expensive construction contractors during a recessive economic climate. Accordingly, throughout the company’s history this emphasis on supplying homeowners with the materials required to complete home improvement and repair projects themselves would insulate Hechinger Company to a certain extent from deleterious economic cycles and distinguish it from competing home center stores.

With this distinctive quality established early in his company’s history, Hechinger set himself to the task of increasing the number of Hechinger Company stores in the Washington area. By 1933, there were four such stores, with the fourth one opening that year. Despite the debilitative effects of the Great Depression, Hechinger was able to amass enough money to buy his own lumber yard in Falls Church, Virginia, eight years later, the same year in which the United States entered World War II. During the war, Hechinger’s stores stocked approximately 5,000 items each, enabling him to gross roughly $1 million a year, but the first great spurt of growth in the do-it-yourself market was yet to come, and when it did the sagacity of Hechinger’s decision in 1924 to cater exclusively to homeowners would begin to pay dividends.

During the two decades following the conclusion of World War II, the emergence of a suburban middle class sparked the emergence, then the growth, of a national do-it-yourself market. The economic expansion that swept across the country spurred industrial growth and increased personal income levels, inducing those with sufficient capital to become homeowners rather than home renters. Factory workers and corporate executives alike became weekend home renovators and repairers, taking their ladders and tools from garages to paint their homes or add a room, the materials for which were purchased from retail stores like Hechinger’s that promoted themselves as home centers. The 1950s and 1960s were two decades of prodigious growth for both America and the do-it-yourself market, but Sidney Hechinger witnessed only half of this postwar economic resurgence, dying in 1958 after leading his company for 47 years. Behind him, Hechinger left a seven-store retail chain operating under the motto “Foundation to Roof, Rock-Bottom Prices” that, in the year of his death, generated $6.5 million in sales.

After Sidney Hechinger’s death, leadership of Hechinger Company was assumed by Hechinger’s son, John W. Hechinger, and his son-in-law, Richard England, who, after opening eight additional stores, took the company public in 1972. Once publicly held, Hechinger Company gained a new motto, “The World’s Most Unusual Lumber Yard,” and the financial means to launch a program of increased expansion, which touched off a decade of dramatic growth for the company that would be exceeded only by its performance during the following decade. Each year between 1972 and 1979 Hechinger Company increased its sales and net income totals, a record of growth that was made even more remarkable considering the economic environment in which it was achieved. The inflationary and recessive mid-1970s crippled many businesses, particularly retail concerns, yet during the worst years of the economic downturn Hechinger registered robust increases in its sales volume, recording a 20 percent increase in 1974 and an even more impressive 40 percent gain in 1975.

Perhaps more encouraging to the company’s new management was how Hechinger’s performance compared to its competitors. Hechinger was positioned in the recession-resistant home center industry. At rival home center stores, 1974 and 1975 represented bleak years, engendered largely by their reliance on business from professional builders. Two of the industry’s largest members at the time, Lowe’s Co. and Scotty’s Inc., recorded losses attributable to the decline in construction activity caused by the recessive economic climate. At Scotty’s, where sales to professional builders accounted for 23 percent of the company’s revenues, sales dipped from $80 million in 1974 to $77.5 million in 1975. More precipitous was the decline in sales suffered by Lowe’s, the industry’s largest competitor. With 58 percent of its revenues derived from sales to professional builders, Lowe’s exposure to fluctuations in the construction market was greater and so was its drop in sales, which fell from $362.5 million in 1974 to $340.9 million the following year. At Hechinger, meanwhile, sales climbed from $49.4 million to $69.1 million between 1974 and 1975, spurred by the increasing numbers of homeowners taking on their own remodeling and repair projects.

Against this backdrop of encouraging growth during a period of economic stagnation, Hechinger stores adopted a decidedly different look, taking on characteristics that would define the company’s retail outlets during the 1990s. Hechinger stores that sold 5,000 products during the 1940s now sold 40,000 products and, consequently, were much larger than their predecessors. Averaging 60,000 square feet of selling space in the mid-1980s, the company’s stores were early versions of the behemoth warehouse retail outlets that flourished during the late 1980s and into the 1990s. Further, each store represented a blueprint for another, as all Hechinger stores adopted the same design, layout, and inventory, enabling the company to realize internal management economies and giving it, in effect, a blueprint for success. More important to the company’s growth was the extensive collection of products each of these large stores sold. The enormous breadth and depth of Hechinger’s inventory created what company officials termed “category dominance,” a vast selection of particular products that gave customers little need to shop elsewhere for home improvement and repair items. Someone looking for a hammer, for instance, could select from 62 different models displayed on the company’s shelves, a diversity that led one Hechinger executive to note, “If it’s for your home and garden and you can’t find it at Hechinger, you don’t need it.”

By the beginning of the 1980s, the plans for rapid expansion that arose from the issuance of stock in 1972 had been largely realized. Hechinger, by 1980, comprised 27 stores selling lumber, paint, tools, garden supplies, and housewares, as well as a limited selection of toys and sporting goods. In 1980, U.S. consumers spent $31.1 billion refurbishing their homes, $9.4 billion of which was accounted for by the do-it-yourself market, a 47 percent increase from the previous year’s total. Nearly commensurate growth would continue throughout the 1980s and fuel Hechinger’s growth as well. The company generated $170.4 million in sales in 1980 and $6.8 million in net income; by the decade’s conclusion Hechinger’s sales total eclipsed $1 billion and it earned slightly less than $50 million, financial figures that would vault the company to the fore of the home center industry.

A major step toward achieving this remarkable record of growth during the decade was taken in 1982, when Hechinger announced it was opening a store in North Carolina. For years company officials had stated that Hechinger would not expand beyond a 200-mile radius around its distribution center in Landover, Maryland. More than 200 miles away from Landover and the company’s delivery trucks, which were kept scurrying among Hechinger’s stores to replenish massive inventories, could not make the trip in one day, a logistical problem the company’s management wished to avoid. That all changed when Hechinger opened two stores, the company’s 36th and 37th, in Charlotte, North Carolina, in early 1983, transforming it from being a metropolitan Washington, D.C. retailer into a mid-Atlantic retailer. The move into North Carolina also pitted Hechinger against industry giant Lowe’s, which by this point was generating $1 billion a year in sales. Based in North Carolina, Lowe’s had 51 stores in its home state, where Hechinger was relatively unknown, giving the battle between the industry’s entrenched leader and its quickly ascending rival a determinative quality.

By this point, however, Hechinger had little to worry about. Confidence ran high at the quickly expanding retailer, its growth propelled by the growth of its aggregate retail space. From 1972 to the early 1980s, when Hechinger made its first steps outside the metropolitan Washington region, the company’s retail and storage space increased from 506,000 square feet to over three million square feet, and the number of its stores rose from ten in 1972 to more than 40 (15 stores were opened in 1983 alone). With massive stores and enormous inventories, the company was attracting the lion’s share of the do-it-yourself market wherever it maintained a sizable presence. In 1983, a typical Hechinger store averaged 500,000 customers a year, considerably more than the 120,000 averaged by competitors, a disparity that fueled optimism about the company’s future along the mid-Atlantic seaboard.

By 1986, Hechinger had posted record profits every quarter since going public in 1972, which translated as an average 28 percent annual increase in profits. Sales that year reached $588.4 million, generated by stores that contained between 80,000 square feet and three acres of retail space. With John Hechinger, Jr. taking control of the company that year, the company planned to add ten to 14 stores per year to achieve annual sales growth of between 20 percent and 25 percent, as the company’s management aimed their sights on reaching the $1 billion sales mark. Two years later, in 1988, two acquisitions helped the company achieve its financial goal. In December, Hechinger agreed to acquire the retail division and related real estate interests of Quakertown, Pennsylvania-based Triangle Building Supplies & Lumber Co. for approximately $27 million. The acquisition gave Hechinger six stores in Pennsylvania, which continued to operate under the Triangle name once the purchase was completed, but another acquisition completed earlier in the year provided a more substantial and longer lasting boost to Hechinger’s business. The company purchased Home Quarters Warehouse, Inc. for $70.5 million, an acquisition that experienced robust growth under Hechinger’s management during the early 1990s.

With Triangle Building Center stores and Home Quarters stores complementing the company’s flagship Hechinger stores, sales eclipsed $1 billion in 1989, then eclipsed $2 billion five years later. During this period, Hechinger faced mounting competition from a relative newcomer to the do-it-yourself market, Home Depot Inc., an Atlanta, Georgia-based retailer that quickly rose to the top of the industry. To combat Home Depot’s incursion into Hechinger’s territory, the company launched a prodigious expansion program in 1990 focused largely on increasing the number of its Home Quarters stores.

With 84 Hechinger stores at the time, the company planned to add 30 stores by 1992 to the subsidiary’s 15-store chain, which as the decade progressed proved to be the engine driving the Hechinger empire. Between 1992 and 1993, Hechinger’s Home Quarters Warehouse subsidiary’s sales increased 42 percent; moreover, between 1990 and 1995 sales had grown at a compound annual rate of 46 percent. More impressive was the subsidiary’s compounded annual rate of operating profits growth, which for the 1991 to 1994 period reached 41 percent. With the strong performance of its Home Quarters stores buoying its business, Hechinger recorded $2.09 billion in sales in 1993, a total reached despite the divestiture of its Triangle Building Centers division the year before.

In the 73 years between the founding of Sidney Hechinger’s wrecking and salvage business in 1911 and the 119-store retail chain that described Hechinger Company in 1994, a do-it-yourself retail pioneer had emerged. Hechinger had developed a business philosophy and marketing strategies that many of its competitors copied during the increasingly competitive 1990s. Sidney Hechinger steered the company’s marketing efforts toward the homeowner, establishing Hechinger Company’s corporate focus. His son and grandson took the company to new heights by greatly increasing store and inventory size, making sure as they did so that Hechinger Company remained focused on the homeowner. As the company plotted its course beyond the mid-1990s and into the next century, these basic retailing strategies shaped its plans for the future.