Struggling HomeBase Taps New CEO in Bid for Turnaround

HomeBase Inc., besieged by heavyweight competition as it struggles to keep its share of the Southland’s thriving home improvement industry, said Friday that Chief Executive Allan Sherman has resigned.

The Irvine-based chain, which last week announced that its earnings dropped 44% last year, tapped its chairman, Herbert J. Zarkin, an industry veteran experienced at keeping competitors at bay, to head the company.

HomeBase has been operating in an increasingly cutthroat arena over the past couple of years as industry giant Home Depot Inc. launched a massive expansion throughout California and the nation’s second-largest chain, Lowe’s Cos., also has moved into the state.

The area remains a magnet for such companies as baby boomers continue to pour money into their homes.

“They are spending big bucks on making their homes into their castles,” adding saunas, whirlpool bathtubs and commercial stoves and refrigerators, said Kenneth Gassman, an analyst with Davenport & Co. in Virginia.

HomeBase operates 88 store in 10 western states, most of them in California. Home Depot currently has 125 stores in the state and plans to open about 21 more by the end of the year.

Further leveraging its dominant position, Home Depot last year launched its Expo Design Centers to sell interior design products. Playing catch-up, HomeBase announced last week it will open five stores that will feature patio furniture, garden supplies and home furnishings, including linens.

Differentiating itself from Home Depot will be key to HomeBase’s future, industry insiders say, since it’s tough to compete head-to-head with a huge competitor that dwarfs HomeBase in sales and number of stores.

Indeed, many companies have already succumbed to competitive pressures over the past decade--closing their doors or being bought out by larger chains. Others have teamed up to form co-ops to hold down costs.

“The home center industry is in the midst of a major transition and consolidation,” Gassman said. “When Home Depot and Lowe’s come to town they’re going to muscle market share away from the other players.”

HomeBase said the shift at its top does not signal a change in plans to open new stores that feature home furnishings. “We are continuing on course,” spokeswoman Michele Feller said.

The company has had sluggish sales over the past five years. Sales at stores open a year or more, a key industry indicator, grew just 1.4% last year.

The stock, which lost more than half of its value in the last year, closed unchanged Friday at $2.56 a share on the New York Stock Exchange. Zarkin, 61, has been with the company since 1986 when it was a division of Zayre Corp. Sherman, 55, had been with HomeBase six years, the last three as chief executive.

The company said Sherman resigned Thursday and plans to retire. It did not elaborate, and neither Zarkin nor Sherman could be reached for comment.

Zarkin was previously chairman of Waban Inc., parent company of BJ’s Wholesale Club and former owner of HomeBase.

In that position, he secured BJ’s position as a regional operation during an industry consolidation that created stiffer competition, said Don Logo, editor of National Home Center News, a biweekly industry trade magazine.

“Zarkin is not unfamiliar with the challenges HomeBase faces,” Logo said. “At least he has some track record of having done it in a related industry.”

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In Need of Improvement

HomeBase has been struggling against larger competitors such as Home Depot and Lowe’s, without much apparent success. Sales, earnings and stock price for the home improvement chain:

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Source: Bloomberg News