Village Super Market, the owner of ShopRite and Gourmet Garage, has put in a $70 million offer for five of Fairway’s Manhattan stores, including the flagship Upper West Side location, and its distribution center. Village Super Market’s CEO, Robert Sumas, has indicated that those stores would continue to operate under the fabled Fairway name. Workers may not fare as well. Village Super Market has indicated that it is not interested in taking on the pension liabilities as part of its offer. The fate of the remaining nine stores and the many workers they employ is unclear. The shuttering of these grocery stores remains a possibility.
Fairway, like Gymboree, Toys “R” Us, and so many other retailers before it, failed because it was saddled with debt and could not adapt to meet new competitive pressures. And, as in the case of Fairway, the private-equity firms that owned these other failing companies still managed to recoup their investments and make a profit. They extracted value by collecting advisory fees, paying themselves dividends, or stripping away a company’s assets. While the private-equity firms profited, the bankrupt company’s workers paid the price. When Toys “R” Us closed in 2018, 31,000 workers lost their job. When A&P went out of business in 2016, 21,000 workers lost their job and pension benefits.
A lack of transparency disguises private equity’s role in the retail apocalypse. When General Motors in November 2018 decided to halt production at five North American plants and cut up to 15,000 jobs, Congress summoned the company’s CEO, Mary Barra, to answer for its decision. In contrast, few people outside finance know what Sterling or KKR or Blackstone is. Even after companies owned by private-equity firms go bankrupt, the investors suffer no public approbation or damage to their professional reputation. They can still raise money from pension funds and other institutional investors to buy out other companies under the guise of saving them.
Read: The Ghost Bosses
Newell, the head of UFCW Local 1500, is concerned that Fairway workers will pay the price for the self-serving decisions of Sterling and the chain’s other Wall Street owners. Newell said that union workers already lost nearly $80 million in pension benefits during the A&P bankruptcy, and he sees a parallel with the Fairway bankruptcy.
If private-equity firms cannot be socially responsible stewards of capital, then Congress will need to act. One possible reform would involve fully taxing the advisory and other fees that private-equity investors extract from the companies they own. Another potential reform would impose restrictions on dividends paid out in the two years following a buyout. Since the current system allows private-equity firms to reap much of the positive gains from successful acquisitions, they could also be required to bear some of the liability for a company’s debt when the buyout ends in bankruptcy.
Private-equity firms claim that they make their money turning troubled companies around, and some do. But all too often, these investors buy healthy companies and use their superior access to borrowed money as a method of harvesting profits on their investments from the companies they acquire. Having made their money, they then move on, and the fate of employees in hollowed-out companies is no concern of theirs.