Orchard Supply Hardware, a fixture in the Bay Area since it
was founded in San Jose in 1931 as a farmers co-op, faces an uncertain future
under a deal and bankruptcy filing announced Monday that will preserve its
iconic name while turning over most of its stores to hardware rival Lowe's.
But Lowe's so far has only agreed to buy 60 of Orchard's 91 stores, which include about 20 in the Bay Area. "There could be up to 30 that could close," Orchard CEO Mark Baker said in an interview. He quickly added, "We don't believe that's likely," but some of OSH's longtime customers are anxious.
Among those is 71-year-old Frank Eggen, of San Jose, who was shopping Monday at Orchard's oldest operating store, built in 1946 on West San Carlos Street near downtown San Jose. He said he's been coming here for half a century for bolts, springs, bungee cords, ladders and other items, and would be upset if it was shuttered.
"I'd certainly miss it," he said. "It's the downtown city hardware store." Aside from Orchard's relatively small, neighborhood-based stores, he added, "you can hardly go anywhere where you can weigh your own nails."
Begun as a cooperative for orchard farmers to buy supplies, the company has gone through several ownership changes over the years as it opened stores in California locales from Antioch to Rancho Cucamonga to Yuba City. It was bought by Sears in 1996, but was spun off as an independent, publicly traded operation at the end of 2011. It's had a tough go in the highly competitive hardware and garden business.
Orchard's annual sales have slumped from $762 million in 2008 to $657 million last year, when it reported a $118 million loss. As of Feb. 2, according to a federal regulatory filing, it had $6.5 million in cash or cash equivalents, while its debt and lease obligations totaled $261 million.
Under the preliminary deal announced Monday, Lowe's has agreed to buy "no less than 60" of Orchard's stores for $205 million in cash, plus whatever payments are due to Orchard's partners. Lowe's, which is based in Mooresville, N.C., isn't saying precisely how many stores it might buy or where they would be located.
"We're evaluating the sites," said spokeswoman Chris Ahearn. "It's just too early to know."
The sales of stores will have to be approved by the bankruptcy court and Lowe's bid could be overridden by another company offering more money. But Baker said he wasn't aware of any other potential buyers and that he expects Lowe's to ultimately acquire Orchard.
If some stores are closed, Baker added, employees could lose their jobs. As of February, its workforce totaled 5,360.
The company said in a news release it plans to keep paying its employee wages and benefits, honor customer gift cards and Club Orchard incentives, and "otherwise manage its day-to-day operations as usual" during the restructuring.
After Lowe's acquires its stores, Orchard said, it will operate as a separate, stand-alone business "retaining its brand, management team and associates."
Baker termed the pending deal "a tremendous outcome" for the company and the neighborhoods where its stores are based. Lowe's CEO Robert Niblock also sounded enthusiastic.
"Orchard's neighborhood stores are a natural complement to Lowe's strengths in big-box retail, offering smaller-format hardware and garden stores catering to the needs of local customers," he said in a statement.
He said Orchard's stores are located in high-density, prime locations where Lowe's is underrepresented.
A giant compared with Orchard, Lowe's has more than 1,700 stores, generated more than $50 billion in sales last year and recorded a profit of nearly $2 billion. Many of its stores are well over 100,000 square feet, where Orchard's -- which mostly provide products to help people maintain their homes -- are typically about 36,000 feet, with 8,000 feet of exterior nursery space.
Not every Orchard customer said it would be a tragedy if some of its stores closed. That included 74-year-old Frank Parra, of San Jose, who was also at the West San Carlos Street store and who said he's been shopping at Orchard since the 1960s.
"It's a good store," he said of the West San Carlos operation, adding that its employees "have been nice." But he said he's not wedded to any particular hardware retailer. Where he lives, he said, "Lowe's is right around the corner."
Contact Steve Johnson at 408-920-5043. Follow him at Twitter.com/steveatmercnews.
Orchard Supply Hardware
Founded: 1931 in San Jose as a buying cooperative for orchard farmers
Stores: 91, including 89 in California and about 20 in the Bay Area
Employees: 5,360 as of February.
2012 sales: $657 million
2012 net loss: $118 million
(c)2013 the San Jose Mercury News (San Jose, Calif.)
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