MARSH TO CLOSE CHICAGO STORE

JON SPRINGER

INDIANAPOLIS - Marsh Supermarkets, whose expansion into the Chicago market less than a year ago was viewed by some as a risky move, this week will close its one and only store there.

Citing a need to reduce expenses and improve its financial condition, Marsh terminated the lease of its 66,000-square-foot location in the wealthy Chicago suburb of Naperville, Ill., late last month. The property's landlord, Kite Realty, subsequently sold the store to local specialty grocer Angelo Caputo's Fresh Markets, which intends to renovate and reopen the store within six to eight weeks, Dale Ohman, marketing director of Angelo Caputo's, told SN.

Marsh said the closure of the Naperville store would cost $8.3 million, net of anticipated proceeds from equipment sales of $1.4 million. The charges include a $5 million lease termination fee, $3.1 million related to equipment leases and $400,000 related to employee severance and relocation.

Marsh opened in Naperville last August after the company noted that growing its core Indianapolis market meant cannibalizing its own sales. Don Marsh, the chairman and chief executive officer, told SN then that the company was hunting for additional locations in Chicago's western suburbs.

The expansion, however, proved to come at a difficult time for Marsh and bucked a trend among food retailers to retreat from markets where they lack brand recognition and scale. By year-end, poor financial results including significant debt, and a grim outlook had prompted Marsh to seek a sale of the entire chain. It agreed to a buyout offer from the private equity firm Sun Capital Partners earlier this year, but has since filed suit to determine if it can begin negotiations with another bidder.

In the meantime, the company's struggles have intensified. Quarterly financial results filed last month detailed comparable sales declines of 5.6% and losses of $27.9 million sparked by impairment, restructuring and goodwill charges. In its annual report filed late last month, Marsh said it does not expect to generate sufficient cash to pay off notes due to mature next summer and would need to refinance them. In addition, Marsh has negotiated delayed payments with some product suppliers and has an underfunded pension plan.

David Livingston, an industry consultant based in Pewaukee, Wis., in an SN article last year predicted Marsh would have difficulty gaining recognition in a new market. Reached last week, he reiterated: "It was never a good idea to go to Naperville." However, he predicted success for the building's next tenant.

"They're very sharp," Livingston said of Angelo Caputo's, based in nearby Addison, Ill., and operator of four other area stores. "They have a very good produce program, a lot of international foods and heavy Italian feel. You've got to jockey for parking in their other locations."

The Naperville location would become Caputo's largest store by far, Ohman said. Renovations to the store - which used Marsh's avant-garde "lifestyle" design featuring a double-racetrack layout with various store departments surrounding a central fresh area - will focus on installing a larger produce cooler and reconfiguring certain areas of the store devoted to product categories, such as bath and body and home goods like outdoor furniture, which Caputo's does not sell, Ohman said.

"We're really excited to be in the Naperville area," Ohman said. "A lot of our customers travel from the Naperville area to our other stores, and have been requesting us to open a store out that way for quite a while."

The store could become a destination for shoppers in areas such as Joliet and Bollingbrook, Ohman said. Marsh did some marketing to those areas when its store first opened, but those efforts soon subsided, he added.

Ohman said he anticipated many workers from Marsh would be rehired by Angelo Caputo's, including many who relocated to the area from Indianapolis when Marsh first arrived.

Kite Realty Group, based in Indianapolis, said it sold the property to Caputo's for $14 million. Kite retained the adjacent Naperville Marketplace shopping center, currently under development. "Caputo's is an established Chicago-area specialty grocer with a 50-year tradition of service," Kite said in a statement. "We believe Caputo's, together with T.J. Maxx, will help drive traffic to our center."

Kite officials said Marsh was current with its rent obligations.