Another great tree in the forest of building supply companies has fallen. The “old growth” companies are being culled out of the forest, as the 80 year old Hechinger’s company announced September 9, 1999 that it would liquidate its assets in order to pay off its creditors. On June 4, 1999 newsflash reported (see below) that Hechingers was filing for Chapter 11 protection. In its SEC report, Hechingers had written:”There can be no assurance that the company’s financial results and conditions will not be impacted negatively and materially by existing competition.” That was a corporate way of saying Home Depot and Lowe’s have chewed through our log. It turns out that Chapter 11 was the first cut in what became a clear cut for the company. “Unfortunately, it is clear that continued losses and stiff competition have made it highly unlikely that a traditional reorganization would be possible,” said Hechinger’s CEO Richard Lynch in a Reuters report. The mighty tree falls: in 1998 Hechingers controlled more than 22.4 million square feet of stores, and employed 28,000 people. The company opened in 1919, and continued to grow until more rapidly growing trees in the forest, Home Depot and Lowes, cut off its access to light(i.e. cash flow). In 1997, the company was purchased by Leonard Green & Partners, who also bought Builder’s Square from Kmart and combined it with Hechingers. Reports suggest that the remaining Hechingers stores being closed range from 117 stores to 177. About 60% of these stores are near a Home Depot, and 33% were near a Lowe’s. As more and more big trees fall, the remaining giants soak up more of the forest. “Everytime a large competitor exits, that means Home Depot and Lowe’s will pick up sales,” one US Bancorp analyst told Reuters. The death of Hechingers bumped up Home Depot and Lowe’s stock.
Folklore in the building supply industry suggests the irony of Hechinger’s fall. In the 1980s, Home Depot and Hechinger’s were engaged in takeover talks. Reportedly Hechinger’s discussed buying Home Depot, but the Depot balked at the idea of John Hechinger, Jr. replacing Arthur Blank as President of the merged company. So Hechinger’s is now in building supply heaven, along with company’s like Grossmans, Rickles, and Payless Cashways. When I was a kid growing up in Washington, D.C., my father used to take me to the small Hechinger’s store on Wisconsin Avenue to buy lumber for DIY projects. The death of these “old growth” companies is just a reminder that one man’s lumber is another man’s sawdust, and that Home Depot’s economic development is built upon the economic failure of others. 28,000 workers at Hechingers helped cut a path for Home Depot today. Home Depot is now reportedly selling 10% of all the lumber sold in — not America — but the world. Just what a healthy economy needs: two giant lumber companies left dominating the forest. Won’t THAT be great for the consumer!