Eagle Hardware & Garden, Inc.

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Eagle Hardware & Garden, Inc.

981 Powell Avenue Southwest
Renton, Washington 98055
U.S.A.
(206) 227-5740
Fax: (206) 204-5169

Public Company
Incorporated: 1989 as Eagle Home & Garden, Inc.
Employees: 3,850
Sales: $615.6 million (1995)
Stock Exchanges: NASDAQ
SICs: 5251 Hardware Stores

A leading competitor in the home improvement industry, Eagle Hardware & Garden, Inc. operates a chain of enormous stores in the western United States that offer a wide selection of merchandise. During the mid-1990s, 24 stores composed the Eagle chain, each averaging roughly 120,000 square feet of space. Although the company did not open its first store until late 1990s, it quickly expanded to become one of the dominant retailers in its industry by the mid-1990s, with stores in the Pacific Northwest, Utah, Colorado, Montana, and Hawaii.

When David J. Heerensperger relinquished his posts as chairman and chief executive officer of Pay ’N Pak Stores, Inc. in August 1989, the end, it would seem, had come to what had been an illustrious career in the home building industry. In his early 50s at the time, Heerensperger had been actively involved in the retail sale of hardware products for the previous 35 years, achieving remarkable success during his years of service, most notably by turning Pay ’N Pak, a home building retail chain, into a regional powerhouse. When Heerensperger joined Pay ’N Pak it was a $15 million-a-year company making its way through its first decade of business. By the time the reins of command were passed to Heerensperger’s successor exactly 20 years later, Pay ’N Pak had grown enormously, collecting more than $400 million in sales each year. Not surprisingly, Heerensperger had benefited financially from his years at the helm of Pay ’N Pak, reaping the rewards from what was widely regarded as astute, prescient, and enterprising leadership. Heerensperger left the $400 million company he had built owning roughly 12 percent of it, enough to finance his retirement one hundred times over and spend his days reflecting on his distinguished career. Instead, Heerensperger began anew, creating Eagle Hardware & Garden almost immediately after leaving Pay ’N Pak, opting to forego retirement to orchestrate another assault on his competitors and jump once again into the home building retail market. In less than three years, Pay ’N Pak would sink into financial ruin, collapsing just as Heerensperger was in the process of achieving the greatest success of his professional life.

Founder’s Early Years

The path toward Heerensperger’s success with Eagle Hardware & Garden began in 1954 when, at age 17, he was hired to do inventory for a hardware store in Longview, Washington. Five years later, the man who had hired Heerensperger was impressed enough with his work that he loaned Heerensperger $4,000 to open his own hardware store in Spokane, Washington called Eagle Electric & Plumbing Supply. Another store was added later, as the young entrepreneur enjoyed early success. Then in 1969 the definitive moment in his career arrived when his company and Buzzard Electrical & Plumbing merged with a 19-store plumbing and electrical supply chain named Pay ’N Pak, which had been formed eight years earlier. Heerensperger became the new leader of the merged entities and quickly made his presence known, initiating several important changes that would make the Seattle-based chain the success it would later become and offered glimpses into the way Eagle Hardware & Garden would later operate.

In addition to other changes that were peculiar to Pay ‘N Pak’s condition at the time, Heerensperger took the company public following the merger and dramatically enlarged the size of Pay ’N Pak stores. Within a few short years, square footage was increased by 70 percent, transforming 18,000-square-foot stores into 33,000-square-foot super stores, well before such massive retail outlets became the norm in the retail industry. A greater emphasis on customer service was inculcated, including the employment of a training director charged with developing an instructional program stressing product knowledge and various installation techniques for products sold by Pay ’N Pak stores. Strengthened by enhanced service and store size, Pay ’N Pak flourished, establishing an enviable record of sales and profit growth, as well as a robust rate of expansion.

During the last decade of Heerensperger’s reign over the fortunes of Pay ’N Pak, the retail chain began to reel from heavy debt and competition, as the company gradually began to suffer from the growing presence of home building retailers such as Kmart Co.’s Builders Square, Home Depot Inc., and Homeclub. Eyeing the coming storm, Heerensperger vowed in 1984 to maintain Pay ‘N Pak’s market share, no matter the cost. Before long, a price war flared up and Pay ‘N Pak joined the fray, slashing its prices to keep pace with its deeper-pocketed competitors. By 1986, the struggle to maintain market share was beginning to wear on the company, as its earnings began to slip. Then, in 1987, Pay ‘N Pak’s shaky health was aggravated further by a hostile takeover attempt led by corporate raider Paul Bilzerian, who failed in his attempt but only after a management-led buyout of the company rebuffed his advances.

The leveraged buyout saddled Pay ’N Pak with debt, the last thing the company needed as it waged a price war and attempted to service that debt with dwindling profits. By 1989 (Heerensperger’s last year as chairman and chief executive officer), Pay ‘N Pak was headed toward serious trouble, igniting disputes between Heerensperger and outside directors of the company who emerged on the scene after the 1987 buyout. Relations between Heerensperger and Pay ‘N Pak’s outside directors quickly soured. Heerensperger was annoyed by the intrusion of the outside directors, while the outside directors grew increasingly anxious about the future state of the company, creating an uneasy tension that lingered until Heerensperger left the company in August, holding stock and cash that amounted to $13 million.

Eagle’s Origins

Although his tenure at Pay ‘N Pak had ended on a decidedly sour note, Heerensperger’s achievements during his 20-year control over the company were numerous and widely praised by those within the home building retail industry. Rather than gloat about his distinguished career, Heerensperger moved forward with his new plans with remarkable speed. In November 1989, two short months after resigning from Pay ‘N Pak, Heerensperger incorporated his new company and named it Eagle Hardware & Garden, Inc., resurrecting the name of the electric and plumbing supply store he had founded in Spokane in 1959. Heerensperger’s intentions were clear from the start: He would establish a home building supply retail chain that would offer “the most complete selection of hardware, garden, and building materials in the region,” as he announced in the Puget Sound Business Journal In formulating plans for his new retail concept, Heerensperger would include several of the defining characteristics that had enabled him to record the success he achieved with Pay ‘N Pak, but on a much larger scale. Eagle Hardware stores would be considerably larger than Pay ‘N Pak stores and offer a much broader and deeper selection of merchandise. Fittingly, the chain’s motto would be “More of everything,” a phrase that succinctly described the massive stores to come in the next few years.

In what would be his final annual meeting at Pay ‘N Pak in 1988, Heerensperger declared to those in attendance that “there will never be a day that I won’t be proud of what we’ve done.… Every time I see a big Pay ‘N Pak truck going up the street, I’ll be really happy.” As he busied himself with “getting blueprints going and leases signed” in early 1990, however, Heerensperger was gambling his own money and reputation on beating home improvement chains, Pay ‘N Pak included, and carving a lasting position for his new company in already crowded markets.

Heerensperger invested $4 million of his own money in his new venture, then gained an additional $4.5 million from primarily local investors, who purchased an interest in the company at $2.75 per share in a private placement in June 1990. The first Eagle Hardware store, a sprawling building measuring more than 100,000 square feet inside, opened its doors in November 1990, with the company’s motto, “More of everything,” triumphantly emblazoned across the front. Located in Spokane, where Heerensperger had cut his teeth in the retail business with the first of his Eagle Electric & Plumbing Supply stores in the late 1950s, Eagle’s maiden store contained more than 50,000 items, including 150 types of hammers, a lighting section with 1,400 fixtures, and a customer lounge. The Spokane store represented retailing on an enormous scale, easily larger than Pay ‘N Pak’s stores and larger even than Home Depot’s stores, the ranking king of the heap. Inside the store, friendly, helpful service was the rule, much as it had been once Heerensperger assumed control over Pay ‘N Pak. In fact, Heerensperger hired 50 former Pay ‘N Pak employees to provide such service at his first store.

Company Perspectives

Eagle Hardware & Garden believes that its unique merchandising concept differentiates the Company from its competitors by combining a customer-friendly store with a “More of Everything” merchandising strategy, outstanding customer service, everyday low pricing and convenient store locations.

By June of 1991, Heerensperger had secured additional financial help, raising $10 million in another private placement to help fund the company’s expansion. At the time, there was supposed to be another store already established, but construction and permitting delays had slowed progress. The unexpected delays did not keep the company at a standstill, however, and by August another store had opened for business, this time in Tukwila, Washington, a suburban community near Tacoma that would serve as Eagle’s headquarters. Two more stores were established in November, one in Seattle and another in Bremerton, Washington, each averaging 120,000 square feet in size. Now with four stores in operation, Heerensperger began the push to develop Eagle into a strong regional chain, confiding to a reporter for the Puget Sound Business Journal, “These stores are tough to operate. I don’t expect we’ll have more than 30 or 40 of them.” For the year, Eagle generated $51 million, but Heerensperger was already looking toward the day when, considering his projected ceiling of growth, Eagle would be pulling in $1 billion in sales per year.

Eagle Goes Public in 1992

Few could doubt he might reach such a total, particularly after the events of 1992 were played out, when three more stores were added to the company’s fold. A Seattle store opened in August, followed by the establishment of a store in Federal Way, Washington the next month, when Pay ‘N Pak finally caved in under the weight of debt and closed its doors forever. The third store, which began business in October, extended the company’s presence beyond Washington’s borders for the first time and into Alaska, where a 168,000-square-foot store was opened in Anchorage. The opening of these three stores during a three-month span had been aided in part by the company’s initial public offering in July, when Eagle’s stock sold for $14 per share. By October, when the Anchorage store opened, Eagle’s stock had soared, jumping to $31.25 at one point during the month, instilling confidence that Eagle in the years ahead would become a dominant force in the hotly contested home improvement market.

Like Pay ‘N Pak, Eagle had become a publicly traded company under Heerensperger’s control, and like Pay ‘N Pak, Eagle was demonstrating exponential sales growth under the stewardship of its founder. Sales for 1992 had nearly trebled from the previous year’s total, leaping to $147 million, while the company’s net income had increased to nearly four times the figure recorded for 1991, eclipsing $4 million. As the company entered 1993, plans called for opening six new stores in the coming 12 months, a goal Heerensperger and his management team fell short of by one store. Still, the addition of five stores in one calendar year represented a prodigious achievement, shoring up the company’s presence in its home state of Washington, where four of the new stores were located, and expanding its geographic scope once again with the establishment of a store in Waipahu, Hawaii.

By mid-1993, when ten stores composed the Eagle chain, expansion was taking place at a rapid clip, while the existing stores, each of which averaged $29 million in sales per year, were flourishing. Looking ahead, the company was planning to open five to seven stores per year for at least the next several years, which would soon make the Eagle chain one of the dominant home improvement retailers in the western United States. With two more stores slated to open before the end of the year, Eagle was moving forward resolutely, achieving results that drew national attention and distinction. In 1993, the trade publication Building Supply Home Centers named Eagle its 1993 retailer of the year and Heerensperger its “master entrepreneur” of the year. Still more recognition came from Fortune magazine, which ranked Eagle as the second fastest growing company in the country. When the year was concluded, the financial figures were announced and, as expected, the company continued to record energetic growth. Annual sales had more than doubled, reaching $322.9 million, a gain mirrored by profits for the year, which rose to $10.7 million.

Eagle completed its third round of public financing in March 1994, raising $86 million from the offering, but aside from the welcome infusion of cash, the company’s management would look back on 1994 as the toughest year in Eagle’s short history. Home Depot, the undisputed giant in the home improvement industry, had opened five stores in the Puget Sound area over the past several years, encroaching on Eagle’s home territory and intensifying the competition in what already had been a heavily contested market. To make matters worse, the company stumbled for the first time, shaking investor confidence in Eagle’s future growth. Earlier, the company had established a Canadian subsidiary to superintend the operation of Eagle stores in Edmonton, Alberta, but a little more than a year later the foray into Canada had proved to be an unsuccessful venture. The closing of the Canadian subsidiary in 1994 caused Eagle’s year-end earnings to fall considerably, despite a 61 percent gain in sales. For the year, the company collected $518.7 million in sales, but recorded its first loss, registering a staggering $6.3 million deficit.

In January 1995, Eagle opened its first store in Montana, a 142,000-square-foot establishment in Billings, and its third store in Utah, having entered the state for the first time in May 1994, when Eagle outlets were opened in Murray and Sandy. Attracted by Utah’s fast-growing economy, several of the country’s largest home improvement chains were moving into the state, Home Depot included, and Eagle moved quickly to establish a solid footing in the state. The company upped its ante in May 1995, establishing its fourth Utah store in Orem, concurrent with the opening of two more stores in Washington, which became the company’s thirteenth and fourteenth stores in its home state. The three stores opened in May represented the greatest number established in one month. On the heels of this unprecedented spurt of growth, however, the company announced it would scale back its expansion in the future. Instead of opening five to seven stores a year, as company officials had announced in 1993, projections for the years ahead called for the establishment of between three and five stores a year.

At the end of 1995, a year in which Eagle generated $615.6 million in sales and posted $11.3 million in net income, eclipsing the total recorded before the company’s Canadian subsidiary was closed, competition was continuing to intensify. Many of Eagle’s stores were matched against Home Depot stores located within throwing distance, setting the stage for what promised to be a battle that would reach a definitive conclusion, with either Eagle or Home Depot coming out the winner and the loser sent packing. As Eagle prepared to open its third and fourth stores in Colorado in 1996 and another in Wenatchee, Washington, Heerensperger was keenly aware of the importance the late 1990s would represent for his chain. “This is war,” he flatly explained to a Forbes reporter, referring to Eagle’s rivalry with Home Depot. “They are aiming for us, but we’re a thorn in the side,” he continued, “Eagle is the first home center they haven’t completely run over.” As Eagle, with Heerensperger at the helm, headed into the late 1990s, all efforts were being devoted to keep Home Depot at bay and to continue the remarkable progress that had taken what was only an idea in 1990 and turned it into a flourishing, $600 million-a-year company.