Bankruptcy of the Year

Home Channel News, Jan 10, 2000

When HECHINGER informed a bankruptcy court on Sept. 9 that it intended to liquidate its last 117 stores, it simply confirmed what the rest of the industry already knew: that the company, while the industry's third-largest in revenue, had lost whatever identity it had formed during its 80-year history and did not have a sustainable competitive strategy. When the retailer filed for bankruptcy protection on June 11, it reported a $304.6 million loss for the first six months of its fiscal year, on top of the $92.3 million it lost in fiscal 1998. But the extent of Hechinger's collapse became all too clear in September, when it reported that the company had lost a whopping $402 million in June alone and mustered gross margins that month that were only 8 percent of sales.

Between March 1998 and September 1999, Hechinger had four presidents, each with divergent perspectives about how to fix a company that, in retrospect, was unfixable even before its ill-fated merger with a Builders Square chain that $700 million in investment from former parent Kmart couldn't turn around.

The most searing indictment of Hechinger's mismanagement, though, could be heard in the bitterness and resentment expressed by its own customers who responded to an open forum created on the Washington Post's Web site the day Hechinger announced its liquidation. Many of its shoppers sounded genuinely betrayed by a company they had treated as an icon in the Washington, D.C., market but had violated their trust with shoddy service and out-of-stock stores. That most of these customers compared Hechinger unfavorably to Home Depot and Lowe's only accentuated the defining mistake Hechinger made trying to ape the two warehouse giants without practicing the operational disciplines that make them profitable.

As victors in their market share battle with Hechinger, Depot and Lowe's are now among the companies scooping up the spoils as Hechinger auctions off its assets. In October, Depot bid $15.6 million for one of Hechinger's sites.