How Private Equity Ruined a Beloved Grocery Chain

The news of Fairway Market’s second foray into bankruptcy, this time with the threat that stores could be liquidated to pay off the unsustainable debt hanging over the grocery chain, dismayed its legions of loyal Manhattan customers. Fairway’s New York City stores draw an eclectic crowd of shoppers: local residents, professors and students at schools from the City University of New York to Columbia University, and others seeking its fresh-baked breads, unusual cheeses, and wide range of international foods. Upscale and idiosyncratic, with its humble roots still evident, Fairway is emblematic of the city in which it has become a storied institution. But, fatefully, it is also emblematic of the way private-equity investors—including Fairway’s former owner Sterling Investment Partners—have hastened the fall of brick-and-mortar stores caught in the so-called retail apocalypse.

The story is a familiar one, even for shoppers hundreds of miles from the nearest Fairway. Most consumers have seen some of their favorite chains—Toys “R” Us, Shopko, Claire’s, Payless ShoeSource, Nine West, Gymboree, Staples, and A&P, among many others—face financial distress and shutter some or all of their stores. Like Fairway, these businesses were owned by private equity, a form of finance in which investors buy, overhaul, and then sell companies. Also like Fairway, the other retail chains were profitable at the time they were taken over. Before those buyouts, these businesses had low debt levels and owned their real estate—a necessary precaution for companies suddenly facing more competition or industries seeing widespread changes.

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