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HQ turns up heat: new home improvement center opens in NLR, challenges National.

THOUSANDS OF ARKANsas steeled themselves against the cold last weekend to see one of the greatest spectacles the state can offer, but this was no football game. This was a home improvement store.

Home Quarters Warehouse of Virginia Beach, Va., unveiled a colossal, 142,000-SF store in North Little Rock on Oct. 28, leading to 11,000 purchases in the first four days of business. The company claims the store will attract $30 million to $60 million in annual sales. With another HQ under construction in west Little Rock, the market has clearly changed forever.

"We're a wake-up call," says Frank Doczi, president and chief executive officer of publicly held HQ. "When we arrive, everybody gets sharper and runs their operations better."

In this case, the call is going out to Springdale-based National Home Centers Inc., which went public earlier this year and dominates its eight Arkansas markets. HQ, with a parking lot big enough to land small aircraft, threatens to steal that dominance with its first entry into the state.

National is keeping a vigilant watch on the newcomers, but the company seems to feel secure in its niche.

"They are not doing anything in our view that is insurmountable," says National President Dwain Newman.

Overwhelming Experience

Most Arkansans have never seen the likes of the new HQ. In the week of HQ's grand opening, hundreds of green-shirted employees waited at the end of every aisle, bombing customers with helpfulness.

But most shoppers were too distracted to pay any attention. Not only is the store extremely long, it is also very tall. In many areas, products are stacked 15-20 feet high. That's what makes HQ a true warehouse, and it's one of the primary ways the company keeps its prices down.

To the uninitiated, HQ can be overwhelming.

Middle-aged men sit on bleacher seats while they learn how to install ceramic tile. Scores of young children romp around the in-store child-care center. Women gawk at the unbelievably low prices on house plants. The tired-footed, having spent two hours traversing the store, relax at the snack bar. Every hour or so a voice comes over the loudspeaker and all the employees cheer "HQ! HQ! HQ!" like the victors of a ball game.

And at the door, more green-shirts give out yardsticks. Green yardsticks.

For all the hoopla, television ads, 76-page circulars, massive crowds and powerful first-week sales, it is surprising to learn that the National Home Centers store just down Landers Road apparently didn't suffer from the competition. Newman says business was level there, bolstering the theory that stores like HQ actually expand the market for home improvement products by drawing customers to the city from up to 100 miles away.

The performance of this HQ store and the one in west Little Rock will determine the number and location of future HQ stores in Arkansas. At the checkout lanes, associates ask for their customers' ZIP codes before they start ringing up purchases. This tactic allows HQ to map out the boundaries of the store's influence.

HQ has made an aggressive entrance, comparing its prices with National's and promising to slash 10 percent off the advertised prices of other stores on any items that aren't already priced lower at HQ.

National responded by issuing its own flattering price comparisons and announcing a price guarantee. National, however, promised to match -- not undercut -- the prices of its competitors. For now, everyday prices will stay where they are at National to give the dust a chance to settle.

"When a large competitor like that comes into town, they want to show everyone how cheap they are," Newman says. "So they go in all of our stores -- we had to run them out of 10 -- to find out our pricing before they set their prices."

"But that only lasts for the first 90 days," he says. "We went over to the Memphis HQ and looked at their pricing, and it's higher."

Doczi says HQ's prices will stay at present levels unless the cost of buying the goods goes up. If so, his North Little Rock store could redefine the meaning of the term "category killer."

"The opening was among the most successful we've ever had," he says. "Our new prototype has the capacity to generate $30 million to $60 million in sales each year."

Overall Philosophies Differ

No matter who is in the lead next year, both sides say National can survive and thrive in the market, in part because the two chains' philosophies do not completely overlap.

"Our goal is to be the No. 1 provider of products to the do-it-yourselfers," Doczi says. "We do not intend to be No. 1 in contractor sales. We're not really going after the large builder trade."

As a chain, National Home Centers has been strong in contractor sales, sporting vast acreage behind the store to service the builder trade. But National also has had great success in the retail market and, in fact, claims that sales at the North Little Rock store are evenly divided between the two.

There are other differences. National sells appliances, and HQ doesn't. HQ sells a large variety of house plants, and National doesn't. And so far, HQ is not carrying shrubs and other outdoor landscaping plants -- a strength of National's.

Newman is a bit unsettled by the advertising tactics of the opponent but has retained his corporate composure. He is not accustomed to having his store's sales receipts displayed in disparaging fashion at competing stores, but he is willing to return fire as long as possible to prove that National undercuts HQ's prices on many items.

Rising to HQ's challenge, National is increasing its advertising budget by 25 percent, running slick television spots and buying full-page newspaper advertisements.

No West Little Rock Presence

National's greatest competitive disadvantage may be the lack of a store in west Little Rock, the new Mecca of affluence in central Arkansas. OneSource Home and Building Centers, the central Arkansas home improvement chain owned by Gene Pfeifer, beat everybody to the punch there, and HQ plans to follow soon.

National missed its west Little Rock opportunity when a project off state Highway 10 became entangled in a zoning battle led by none other than Pfeifer, who lives across the street from the proposed site. The Little Rock City Board approved the project, but a chancery court judge overturned the decision. The city has appealed the decision to the Arkansas Supreme Court.

Meanwhile, National's only Little Rock store on Rodney Parham Road is relatively undersized and situated in one of the city's most notoriously aggravating parking lots.

Soon, National might be fighting HQ on its home turf: the rolling hills of northwest Arkansas. Newman plans to build a new Fayetteville store that will be even bigger than the new HQ, but Doczi says his steady westward movement across the South might get HQ to the Ozarks in time for a showdown.

For many months there was even talk of the North Carolina-based Lowe's Cos. re-entering the central Arkansas market, but the company backed out, alleging that it couldn't find a suitable spot in North Little Rock to pair with a west Little Rock store. Without two stores to pool advertising costs and achieve other economies, it's not worth it to build one, the company says.

"That could just be a graceful way of saying we just don't want to compete," says Doczi.
COPYRIGHT 1993 Journal Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Home Quarters Warehouse of Virginia Beach, Va.; National Home Centers Inc.
Author:Haman, John
Publication:Arkansas Business
Date:Nov 8, 1993
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