Why Is Fairway Harlem On The Brink Of Default?

Fairway MarketA few months before Fairway held its initial public offering in 2013, a retail expert told Crain’s that the supermarket’s financial condition was so precarious that it “sounds to me like a company that’s going bankrupt.”

Three years later, the popular grocery store chain is gasping for air. This week, a Moody’s analyst said the heavily indebted company is on the cusp of default. Unless it gets a reprieve from lenders and finds a way to raise cash, the next step could be bankruptcy court.

What on earth went wrong here? How did one of the city’s most beloved retailers stumble so badly? A few thoughts:

New competitors. Fairway rose to the fore a decade ago because it offered a much better selection and prices than tired old A&Ps or Gristedes. But in recent years lots of Fairway shoppers have migrated to new Whole Foods stores and Trader Joe’s.

It expanded too quickly. Fairway’s flagship store on Broadway and West 74th Street is one of those only-in-New York experiences, a place where shopping is a contact sport and where the deals on everyday and harder-to-find items can be really good, if you act fast. None of the newer Fairways in the city (Harlem included) or suburbs possess that kind of atmosphere, which admittedly takes years to build. Fairway’s slogan is “like no other market,” but too many of its stores were like every other market.

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Its new owner didn’t know how to manage the business. Back in 2007, Fairway’s founding Glickberg family sold the business to private equity firm Sterling Investment Partners for $150 million. After the transaction, the new owners had Fairway borrow heavily to fund expansion. Yet Sterling had no experience in supermarkets, where profits at even the best-run companies are measured in pennies on the dollar. Howard Glickberg, the last of the founding family to work at Fairway, left in 2014 and there was lots of management turnover. Sterling made out just fine. It pocketed more than half the proceeds from 2013’s IPO and between dividend payments, management fees, management-termination fees and stock sales, Sterling has recouped all the cash it used to buy Fairway and then some.

What’s next? Fairway will probably have to restructure and close several of its 15 stores. It seems likely the Upper West Side stores will survive because the properties are controlled by a partnership partially owned by Howard Glickberg, while other locations are leased from other landlords. Maybe Glickberg, who retains a seat on the board of directors, could swoop in to buy back the business. Fairway’s current market value is only $16.5 million.

If you want to learn everything about Fairway’s woes, click on this January 2015 Crain’s article.

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Harlem Cultural Archives is a donor and foundation-supported Historical Society, Its mission is to create, maintain and grow a remotely accessible, online, interactive repository of audio-visual materials documenting Harlem’s remarkable and varied multicultural legacies, including its storied past as well as its continuing contributions to the City and State of New York, the nation, and the world. Support Harlem Cultural Archives and click here to get more Harlem History, Thank you.

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