With Fresh Market pulling out, Hurd keeps the seat belt buckled as he travels the retail lanes
KENT DARR May 4, 2016 | 9:50 pm
3 min read time
738 wordsBusiness Record Insider, Real Estate and Development, Retail and BusinessReal estate developer Richard Hurd had the proverbial good news/bad news kind of day on Tuesday.
During the morning, a permit was pulled for construction of the Container Store at his Mills Crossing development in West Des Moines. Two hours later, he got a telephone call from a representative for Fresh Market Inc., telling him that their store at Mills Crossing would close on May 18.
“You need to have your seat belt on to do what I do,” Hurd said today. He was in a remarkably cheery mood for someone who had just learned a major tenant was leaving the tony Mills Crossing development a bare six months after it had opened.
Such is the nature of the retail trades, he said.
“That’s why they call it a high risk. It’s turbulent,” Hurd said.
Truth be told, the news didn’t catch Hurd completely off guard. And Steve Scott, a broker with NAI Optimum who has represented Fresh Market as it searched for space in Iowa and Omaha during its period of rapid expansion, was philosophical as well.
The reason? Both men paid close attention when private equity firm Apollo Global Management bought Fresh Market in March for nearly $1.4 billion.
Fresh Market, based in North Carolina, had been in the hunt for a buyer for nearly a year. The company needed cash after a period of rapid expansion when it moved beyond its core operations in the Southeast and Mid-Atlantic regions. The company’s founders were attempting to put together a private equity deal and Kroger Co. was said to be interested in buying the operation.
Hurd and Scott said that a purchase by grocery giant Kroger would have been good news. Scott said that an experienced grocer probably would have given Fresh Market the two to three years necessary to get established and begin turning a profit in new markets.
However, Fresh Market was jettisoning stores before the Apollo deal. It pulled out of California after operating there for about a year.
Scott had told the Business Record last month to expect a period when rapidly expanding boutique grocers would go through a period of contraction. They were growing too fast and, in some cases, entering markets before their distribution networks were in place.
That was the case with Fresh Market, he said.
Apollo has shown a fancy for specialty grocers. In 2011 it bought Phoenix-based Sprouts Farmers Market and combined it with the operations of Irvine, Calif.-based Henry’s Farmer’s Markets. That deal cost about $200 million. In 2015, Apollo sold Sprouts for about $2 billion, 10 times its original investment.
When Tuesday’s announcement came that Fresh Market would close all of its stores in Iowa — it also has a store in Cedar Rapids — Kansas, Missouri and Texas, Hurd and Scott were not happy; neither were they surprised.
“I felt that that can’t be good for all of us,” Hurd said. “I just didn’t expect it to happen this fast.”
Hurd said that when he found out about the closing, he immediately contacted officials with Recreational Equipment Inc., better known as REI, to find out whether they were happy and, more importantly, prosperous at their location in Mills Crossing. Not to worry, REI was staying put, Hurd said he was told.
“Our other tenants were rock solid,” he said.
He also contacted officials with the Container Store to find out whether they had a change of heart about locating at Mills Crossing. Again, not to worry. The construction permit has been pulled and work is about to start on a 22,000-square-foot, $1.4 million store. The store should be open by Thanksgiving.
Then Hurd started calling operators of grocery stores large and small.
Scott pointed out that he believes Jordan Creek Town Center could provide a separate market for specialty grocery Fresh Thyme, which recently opened in Clocktower Square near 29th Street and University Avenue in West Des Moines.
And there are other grocers looking for new markets. For example, Kroger pays close attention to Greater Des Moines. Sprouts considered opening a store in Omaha, then gave way to Fresh Thyme, which announced in February that it was moving its headquarters from Arizona to the Chicago suburbs and planned to open 100 stores over the next six years.
Scott said there are multiple retail uses for the Fresh Market location in Mills Crossing, but he agrees with Hurd that another grocer would be the best fit.
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