If you want a concise distillation of why Marsh Supermarkets is in such dire straits, you’ll find it in a bankruptcy filing by the company’s chief restructuring officer, Lee Diercks.
“The debtors’ top competitors, Kroger and Meijer, invested capital in excess of $100 million into the regional marketplace, with multiple remodels and new store construction,” the filing said. “Over the last two fiscal years, the debtors invested more than $15 million in capital expenditures to keep pace with store refurbishments and remodels.”
In short, under the ownership of Florida-based Sun Capital Partners, Marsh did remodelings on the cheap. The penny-wise approach showed over time, progressively undercutting the Fishers-based chain’s competitive position.
For chains, it’s a painful reality that store upgrades are downright expensive. When Marsh was at its peak in the 2000s, with about 120 groceries, plowing a mere $500,000 into each would have cost an eye-popping $60 million.
But it’s also a reality that the surest path to retail irrelevance is through underinvestment in stores. Retail observers say it’s the exact same mistake that did in Cub Foods, the last major grocer to close stores in Indiana on a mass scale, shuttering all 11 of its big-box outposts in the state in 2002.
On a broader scale, one of the reasons retailers of all stripes are sputtering is they neglected their brick-and-mortar footprints as they ramped up e-commerce offerings.
That’s according to none other than David Simon, CEO of Simon Property Group, the nation’s largest shopping mall owner. On a conference call with analysts earlier this year, he said, “What we would like to see from the retail community is a dedication back to improving their store environment.”
Simon is practicing what it preaches. In the last five years, the company has plowed $5 billion into retail development projects and plans to spend $1 billion this year.
Unfortunately for Marsh, Sun, like most private equity investors, operated from a different playbook. Such firms aim to maximize returns for investors quickly—often by selling off the business within six years.
It’s not an approach that rewards long-term investment, which is partly why Marsh finds itself in bankruptcy.
In fact, in the private equity realm, bankruptcy often doesn’t equate with failure.
Sun made that point clear with the chain The Limited, which it shut in January. Despite the sour ending, Sun’s investors had plenty to celebrate. Since the firm bought control in 2007, it has made 1.8 times its $50 million investment, thanks to dividends and distributions over the years.
Indianapolis private equity observers are not privy to the numbers but suspect Sun made a profit on Marsh as well—in large part by selling tens of millions of dollars of the company’s real estate soon after buying the chain in 2006.
We don’t begrudge Sun for trying to turn a profit. And we acknowledge that Marsh had plenty of problems when Sun scooped it up. It had suffered a string of steep losses and needed leadership with greater fiscal discipline.
But the company—and community—deserved a better steward than Sun. The firm will move on to other investments. Meanwhile, the business community is mourning the death of an 86-year-old company, one that for decades was among central Indiana’s top corporate citizens.•
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