retail news in context, analysis with attitude

MNB reported late Friday via a "breaking news" alert that Haggen, the Washington State-based grocery retailer that tried to grow from 18 stores to 164 virtually overnight through the acquisition of stores that needed by be divested when Albertsons bought Safeway, said that it will close 27 stores as it looks to reverse revenue and traffic problems that have beset it since the expansion.

The stores being closed included 16 in California, five in Arizona, five in Oregon and one in Washington. This follows a period during which Haggen has been reducing employee hours and laying off some staff because of what some of its suppliers have said privately are enormously disappointing results.

The stores will either be closed or sold in 60 days.

"Haggen’s goal going forward is to ensure a stable, healthy company that will benefit our customers, associates, vendors, creditors, stakeholders as well as the communities we serve ... By making the tough choice to close and sell some stores, we will be able to invest in stores that have the potential to thrive under the Haggen banner,” Haggen Pacific Southwest CEO Bill Shaner said in a prepared statement.

“We’re grateful to have an outstanding team along with the support of our vendor partners, financial backers and friends in the community as we take our next steps forward,” wrote John Clougher, Haggen’s CEO of the Pacific Northwest. “Looking ahead, we will work hard every single day to earn the trust and business of our guests."

Even as Haggen tried to find some competitive equilibrium, it has been hit with two lawsuits - one from Albertsons, which said that Haggen owned it more than $36 million for inventory it got as part of the sale, and one that accused the company of discriminating against developmentally disabled employees during the recent layoffs.
KC's View:
Is this the beginning of the end for Haggen, or just the end of the beginning?

Hard to know. But a few things seem likely.

One is that these almost certainly will not be the end of the closures. Right now, they're trying to stop the bleeding by closing the stores that are performing the worst. But there are still plenty of other stores that are not meeting expectations, and management is going to have to look hard at them fairly quickly.

Just think how awful the morale must be at those remaining stores. Employees have to be wondering if they're next, which means that they may be more engaged in writing resumes than in taking care of customers and running shipshape departments. Customers are going to be aware of the problems ... and if they've been willing to overlook what has been described to me as consistently high prices and out-of-stocks (which many haven't), they're certainly not going to be enticed by the image of a company in serious trouble. (Haggen isn't just heading toward the iceberg ... it appears to already have smashed into it.)

One has to imagine that suppliers are taking notice, and are wondering, if Haggen's troubles continue, if they're going to get paid for goods delivered. The guess here is that the out-of-stocks problems are going to get worse before they get better.

I have no idea if this company can be saved. If I were in charge, the first thing I'd do would be to look for a retailing superstar who could come in immediately and address both the financial and morale issues, and at least create a little breathing room for the company to get back on its feet. (And he or she would run the whole damned company, not just part of it.) And I'd be aggressive to talking to consumers in every possible venue, explaining that Haggen bit off more than it could chew, is choking as a result, but has a plan to emerge a stronger (and much leaner) company. And these statements would have to be convincing, as opposed to the platitudes I'm hearing now.

Let's be clear, by the way, that the demand by regulators as part of the antitrust decisions that Haggen had to take ownership of these stores and begin operating them in fairly short order probably created this mess. But if someone offered me a bet that hinged on me getting into a boxing ring with someone a lot more talented than I, and then fighting with one hand tied behind my back, I'm not taking that bet. No way. (I'd probably lose the fight anyway, even I got into the ring with both hands fee and one of them holding a gun ... and maybe Haggen would have, too. But this fight wasn't even fair.)

I'm not sure what will happen to these stores, though I would imagine that there may be some opportunities for retailers that could come in, not face the same kinds of time constraints, and then create memorable and differentiated store experiences in some of these units. I'm thinking companies like New Seasons, Metropolitan Markets, Sprouts, and maybe even Whole Foods' new 365 concept. (Maybe WinCo could come up with a small-store format? Or Aldi or Trader Joe's could figure out a way to use footprints that are a little bigger than they usually like?) But when and if this happens, the folks who said they believed in the wisdom of the Haggen expansion deal - people who appeared to be breathing their own exhaust - will be left to ruminate about what went wrong in one of the retail business's fastest and more predictable collapses.