Federal grant for home improvement

GRANTS PASS AND KLAMATH FALLS, ORE. -- A year after liquidating their nine-store retail operation, the proprietors of Supply One are back in the hardware business. Tim and Jay Steiner have found a new partner and reopened on the sites of two former Supply One stores, in Grants Pass and Klamath Falls, Ore. The new units, called Diamond Home Improvement Center, are a joint operation with Pacific Coast Building Products, a Sacramento, Calif.-based distributor and manufacturer of roofing, gypsum, masonry and other construction materials.

The Supply One bankruptcy case - which is still grinding its way through a federal court in Reno, Nev. - was filed as a Chapter 11 reorganization on Aug. 24. But court transcripts show that the retailer intended to close its remaining stores shortly after filing for bankruptcy protection. The company owed more than $20 million to Union Bank of California, its primary lender, plus $6.7 million to more than a dozen unsecured creditors. Supply One's assets did not cover its debts to the latter group, most of which were suppliers for the chain's locations in Oregon and Nevada.

Diamond Home Improvement Centers opened last December. Its joint venture partner, Pacific Coast Building Products, has catered almost exclusively to pro customers during its 48-year history. "We wanted to run a business that was a little bit different than what we usually did," said Pacific Coast president and CEO Dave Lucchetti. Pacific Coast sells its products through 30 branches doing business under the names Pacific Supply or Diamond Pacific Lumber in nine Western states. In northern California, the company manufacturers roof and floor trusses, runs a door and molding shop and distributes waterworks materials.

The softening construction industry, particularly in the Pacific Northwest, convinced Lucchetti to put more emphasis on DIY retailing. "I don't think the market is big enough to do one thing or the other," he said. Supply One's locations in Grant's Pass and Klamath Falls sold mostly to homeowners, whom Lucchetti is trying to woo into the new Diamond home centers. "It's been slower than we anticipated," he admitted. "The first few months weren't too much fun."

Lucchetti is related through marriage to Tim and Jay Steiner, brothers who owned and operated Supply One. "We kind of grew up together," Lucchetti explained. But he stressed that Pacific Coast had nothing to do with the failure of Supply One. "We were unsecured creditors as well, for a substantial amount," Lucchetti pointed out. (Bankruptcy court documents show that Basalite, a Pacific Coast division that makes retaining wall blocks, interlocking payers and other masonry products, holds an unsecured claim for $72,271.) Because of the connection to Supply One, suppliers were initially leery about doing business with Diamond Home, Lucchetti said. "They had some concerns, and rightfully so," he said. "But most of them have gotten over that [uncertainty] and are more comfortable now."

Plans to offer installation

Diamond Home's stores carry a full assortment of hardware, electricals, plumbing, and lawn and garden, plus many of the building products made by Pacific Coast. Both locations are huge - they average 75,000 square feet -- anti feature kitchen and bath showrooms. "They look identical to Supply One's stores, only cleaner," observed one visitor to the Klamath Falls location. "The gondolas and the merchandise are basically the same. They're not doing anything different."

Diamond has rehired many of Supply One's former employees, according to Tim Steiner, who serves as general manager of the two stores. In an interview with NHCN, Steiner said he wanted to try his hand at the contractor side of the business, an opportunity afforded by the Pacific Coast joint venture. "It's a mutual thing," said Steiner, explaining how Pacific Coast, whose stronghold is in Northern California, can now expand its distribution in Southern Oregon. Two of Supply One's most successful locations were in Klamath Falls and Grants Pass, Steiner noted.

Steiner didn't want to discuss the demise of his former retail chain or the status of Supply One's bankruptcy case. "I don't know what's going on with the corporate people," he said. "It's completely out of our hands." Steiner added that he resigned last November from Supply One, which also owned Nevada Wholesale. The latter entity engaged in "minimal business activity," according to court documents, which list Jay and Tim Steiner as holding, 56 percent and 43 percent of the corporate stock, respectively.

Future plans for the new Diamond home centers include installed sales; these services will start with carpeting and kitchen remodels, Steiner said. Although two of his partner's more retail-oriented outlets -- Diamond Pacific Lumber in Placerville and Auburn, Calif. -- are affiliated with Do it Best Corp., the Diamond home centers have joined Ace Hardware. "We're strongly affiliated with Ace and all the areas they carry," Steiner said.

Dan Dorgin, Ace Hardware's field representative for northern California and southern Oregon, characterized the relationship somewhat differently. "They use us for some of their purchases," said Dorgin, estimating the inventory share at 20 percent. Supply One was also an Ace dealer, one that apparently still owes money to the Oak Brook, Ill.-based buying group. "The whole matter is unresolved," said Ace's spokeswoman Paula Erickson. "[Our] lawyers are still working on the case."

Losses written off

Another supplier still tracking the case is Martha Garcia of Norman's Nursery in San Gabriel, Calif. "I won't give it up," said Garcia, who pays a visit to the Reno, Nev., bankruptcy court every two to three months. Garcia hopes to collect something -- anything -- on Supply One's outstanding balance of $98,000. "There's still money there because the lawyers are still getting paid," asserted Garcia. No Chapter 11 reorganization plan has ever been filed for Supply One, according to a spokesperson for the Nevada Court's clerk's office. Nor has the case been converted into a Chapter 7 bankruptcy filing. Calls to the U.S. bankruptcy trustee's office in Reno were not returned.

Unlike Garcia, most of Supply One's suppliers have written off their losses. Jim Russell, an attorney who serves as controller for Siskiyou Lumber Products in Woodland, Calif., described the Supply One case as "basically a Chapter 7 disguised as a Chapter 11."

"We talked to the judge one day and [he said] there was no hope of getting any money," said Russell, who sat on the unsecured creditors' committee. Although Russell is bitter over his company's $150,000 loss, he said he'd be willing to ship to Diamond home centers, now that they've got new financial backing. "If they approached us, we'd be hard pressed not to sell to them," Russell said. "It wouldn't make me feel good, but if you don't sell them, your competition will."