THE VIRGINIAN-PILOT Copyright (c) 1995, Landmark Communications, Inc. DATE: Thursday, August 24, 1995 TAG: 9508240537 SECTION: BUSINESS PAGE: D1 EDITION: FINAL SOURCE: BY STEPHANIE STOUGHTON, STAFF WRITER DATELINE: VIRGINIA BEACH LENGTH: Long : 133 lines
Hechinger Co. said Wednesday it will combine its HQ Home Quarters Warehouse and Hechinger Stores divisions, cutting 100 jobs in Virginia Beach and relegating HQ chief executive officer Frank Doczi to an advisory position.
The Virginia Beach cuts will come from HQ's headquarters, which will be moved to Hechinger's main offices in Landover, Md. Hechinger will still use the HQ building near Lynnhaven Mall, but only as an accounting and computer facility.
The consolidation will not affect store employees or the divisions' names.
The shakeup stems from Hechinger's financial troubles. For years, the company has struggled with strengthening competition and plummeting sales at its Hechinger Stores unit of older, smaller stores. Revenues at Virginia Beach-based HQ Home Quarters Warehouse, a youthful company that had experienced booming growth, deflated this year.
Part of the problem was that the two divisions had similar objectives, targeted the same customers and competed with the same players, said John W. Hechinger Jr., chief executive officer of Hechinger Co.
``Because of these similarities, we saw the opportunity to create a single, fully integrated company,'' he said. ``We believe the increased size and leverage from operating as a single business will create a more powerful organization.''
Joining the 64-store Hechinger unit and the 51-strong HQ division will give the company more buying power. Larger competitors like Atlanta-based Home Depot Inc. and North Wilkesboro, N.C.-based Lowe's Companies Inc. get sweeter deals from manufacturers because they buy more products.
Hechinger Co. plans to funnel resources from HQ's headquarters to its own offices in Maryland. But the home-improvement company will still keep a presence at the Virginia Beach location, executives said.
``A number of people will transfer out of Virginia Beach to Landover,'' said Clark McClelland, Hechinger's chief financial officer and executive vice president. ``But coming the other way, we intend to have a major computer and accounting facility, so we will transfer some people from Landover to Virginia Beach.''
The net loss will be 100 positions in HQ's Virginia Beach headquarters and another 100 at Hechinger's Maryland offices, McClelland said. HQ currently has about 300 employees at its headquarters.
Hechinger will take a fourth-quarter charge of up to $25 million to cover severance pay and other costs related to the consolidation. But the company hopes to save about $20 million a year after eliminating duplicate positions and earning more buying clout with vendors.
The merger is expected to be completed by late 1996.
Hechinger's announcement surprised some in the home-improvement industry. On Wednesday, the company's stocks were down 6 1/4, down from a 52-week high of 15 3/4.
``I'm kind of worried,'' said Kenneth M. Gassman Jr., a retail analyst with the brokerage Davenport & Co. ``Rather than developing the successful Home Quarters operation, it looks like they're diluting those efforts by adding the less successful division.''
Gassman and other analysts have expressed concern about the company slowing its expansion and allowing Home Depot, Lowe's and other competitors to steal market share.
Hechinger is further scaling back store openings. Originally, the company tentatively estimated it would open 10 ``Chesapeake-class'' HQ superstores. That number dropped to six earlier this year. And now, officials plan to debut just one HQ store in 1996 and relocate two smaller Hechinger stores.
In the following year, the company wants to open five new HQ superstores and relocate two older Hechinger stores.
As part of the consolidation, John W. Hechinger Jr., president and chief executive officer of Hechinger Co., will trade in his president's title and take on chairman duties. John W. Hechinger Sr., now the chairman, will become chairman of the board's executive committee.
Kenneth J. Cort, currently president and chief executive of the Hechinger Stores division, will become president and chief operating officer of the new company. Hechinger hired Cort two years ago to turn around the Hechinger division.
The swaps leave Frank Doczi as one of many casualties in Hechinger's shakeup. Doczi, who built HQ Home Quarters Warehouse from the ground up, will become a special adviser to the chairman.
``I know Frank Doczi,'' said Mayor Meyera E. Oberndorf, who spoke to Hechinger officials Wednesday morning. ``He's a very positive, dynamic person. But I guess in today's corporate world . . . the casualties are regrettable. I'm certain the bottom line is what motivates them.''
Doczi could not be reached Wednesday.
``To say that Frank wanted it - I don't know that he did,'' said McClelland, Hechinger's chief financial officer. ``But Frank certainly understands and supports the decision.'' MEMO: HQ CHRONOLOGY
August 1984 - Frank Doczi, along with Bernard R. Kossar, is hired to
organize a chain of home-improvement stores for conglomerate W.R. Grace
& Co. Doczi becomes president of the new company, HQ Home Quarters
Warehouse; Kossar is chairman and chief executive officer.
February 1985 - HQ opens its first warehouse-styled stores in
Virginia Beach and Hampton.
October 1986 - As part of its restructuring, conglomerate W.R. Grace
& Co. sells the retail segment of its business, which includes HQ. Doczi
and other HQ executives step forward with an offer. Grace sells 75
percent of the company to the management group for $11.5 million.
September 1987 - Strapped for expansion funds, HQ announces plans to
raise $15 million in October from the sale of 1.25 million shares. Doczi
and partners plan a crucial meeting with potential investors.
October 1987 - The meeting never happens. On Oct. 19, the stock
market crashes. Federal regulators set a 90-day moratorium on any new
public offerings. An unsolicited offer quickly comes from Hechinger Co.
December 1987 - Hechinger Co. agrees to purchase the six-store HQ
chain for $66 million. With an initial $300,000 investment, Kossar will
score by taking in $40 million.
February 1988 - Hechinger completes buyout of HQ, leaving Doczi in
charge. (Kossar moves on to found OW Office Warehouse, and makes
millions of dollars when the chain is sold to OfficeMax Inc.)
October 1989 - Hechinger announces plans to more than triple HQ by
adding 30 stores to the then 13-store chain over three years.
July 1993 - HQ introduces a new prototype store in Chesapeake's
Greenbrier community. The superstore, which posted record sales, was
tagged as HQ's growth vehicle.
Aug. 3, 1995 - HQ posts its worst quarterly showing since Hechinger
acquired the company. Sales and profits plummet in the second quarter
ended July 29. The first quarter wasn't much better.
Aug. 23, 1995 - Hechinger announces plans to consolidate its
Hechinger Stores and HQ divisions. HQ's Virginia Beach headquarters will
be move, resulting 200 job cuts, but the company will still have a
presence in that location. Doczi, president and chief executive officer
of HQ, is slated to become an adviser to Hechinger Co.'s chairman. ILLUSTRATION: Color photo