Another Big Retailer Files Bankruptcy Leaving Thousands Jobless

The Economy has Recovered! Not Really

Fairway Markets have had a troubled few years, so perhaps this one is not much of a surprise. After going public in 2013, the 15 store chain with stores in New York, New Jersey, and Connecticut was unprepared for the public spotlight. After losing money for its first three quarters as a public offering, the chain of upscale grocers was slapped in 2014 with many suits seeking class action status for misleading investors. The company’s position was not helped by heavy market competition from national players like Whole Foods, Trader Joe’s, and even bulk buyer stalwart Costco began to court upmarket buyers. The court declined to dismiss in 2015, finding that that the plaintiffs had supported their allegations adequately and that the motion to dismiss was denied.

Grocers, even high end grocers, operate on thin margins. Yet, as demonstrated by the Market Basket fracas, shoppers and employees can be loyal to their markets as long as their markets are loyal to them. Market Basket has even opened new stores where other chains are cutting back or shuttering stores. So what happened with Fairway? It had everything – long time presence, brand recognition, and a fanatic following. It also had a whopping load of debt taken on to finance expansion plans. This combined with a new majority owner who might know private equity, but didn’t understand the fundamentals of the grocery industry, made for certain failure.

Don’t feel sorry for Sterling Investment Partners. They recouped all the money they spent to get the chain by taking money off the top of the initial IPO, management fees, dividends, and other balance sheet shenanigans. The losers are the 2,400 unionized Fairway Market workers who now have a recently ratified contract not with the paper it was printed on. That may sound a little harsh, but when a company files bankruptcy Chapter 11, thanks to Supreme Court ruling issued in 1984  and a later change to US Bankruptcy Code, allows union contract to be treated like any other kind of debt and after certain legal requirements are met.  The court may allow the debtor in possession to invalidate the contract and then make alterations to it. This leaves employees bound to perform an agreement that they did not bargain for.

It’s argued that this allows companies to place the restructuring burden on their employees, escape pension obligations, and duck out of negotiated wages and benefits – and it does. A&Pvarious airlinesDonald Trump’s casinos, and even the Chicago Public School System are all staring down the barrel of the same situation. You could argue that the bankruptcy of Fairway Markets is a case of an investor being in the wrong place at the wrong time. If you were not a cynic. As with all other business bankruptcies, the pain for those who are not in the investor class is real and immediate as retirement savings evaporate, savings dissipate into just to pay the bills and buy the groceries.

If you are facing an employer’s Chapter 11, and need to know where you stand, how to keep your financial picture in focus, or get collectors off your back, give us a call. The consultation is free. They have their lawyers to protect their interests; you should have a lawyer looking out for yours.

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Published by
Chad Van Horn

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