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MajorsOct 01, 2019
Forever 21 Files for Bankruptcy, May Close Up to 350 Stores
The fast-fashion retailer is expected to shutter most of its stores in Asia and Europe while maintaining a downsized U.S. presence.
A Forever 21 store on New York City’s Fifth Avenue. The Los Angeles-based retailer, which just filed for bankruptcy, will scale back its physical footprint in the United States. (Image courtesy of Forever 21)
Los Angeles—Fast-fashion retailer Forever 21 filed for Chapter 11 bankruptcy protection Sunday, and plans to close stores in the United States and internationally.
The company will shutter up to 350 of its 800 locations worldwide, including 178 in the United States, and will cease operations in 40 countries, including Canada and Japan, as per a New York Times report.
Its beauty brand, Riley Rose, will reportedly close its 15 locations in the U.S., or be incorporated into existing Forever 21 stores.
“This was an important and necessary step to secure the future of our company, which will enable us to reorganize our business and reposition Forever 21,” Linda Chang, the fast-fashion chain’s executive vice president and the founders’ daughter, said in a press release.
In a letter to customers, the company said it does not plan to exit any major markets in the U.S.
Internationally, it said it will close most of its locations in Asia and Europe while continuing operations in Mexico and Latin America.
The letter assured customers the company is not going out of business, noting its bankruptcy filing “is a deliberate and decisive step to put us on a successful track for the future.”
Forever 21 has secured $275 million in financing from its existing lenders with JPMorgan Chase and $75 million in new capital from TPG Sixth Street Partners to facilitate its restructuring efforts.
The company’s stores are open for business, continuing to accept gift cards and operating under the same policies.
Founded in 1984, Forever 21 began as a small store in Los Angeles, operated by South Korean immigrants Do Won Chang and his wife, Jin Sook.
“The Changs, the founders and owners of Forever 21, serve as a rare and exemplary model of the American Dream,” Chief Restructuring Officer Jonathan Goulding said in a court statement.
“From humble beginnings, the Changs created a worldwide enterprise that, at its peak, employed 43,000 people and had $4.1 billion in annual sales.”
Its first international store opened in Canada in 2001. By 2015, the company had 251 international stores, expanding to 40 countries across five continents.
“Unfortunately, this rapid international expansion challenged Forever 21’s single supply chain and the styles failed to resonate over time across other continents despite its initial success,” Goulding said.
The company leases most of its stores and offices, a total of 12.2 million total square feet for its retail stores, according to court documents, adding up to $450 million in rent.
More
than 70 of its stores exceed 35,000 square feet.
Goulding noted the retailer’s super-sized stores led to “complicated assortment strategies and triggered inventory management challenges.”
While traditional retailers have been losing out to online shopping, Forever 21 has a strong ecommerce presence, with online sales accounting for 16 percent of all sales, as per court documents.
However, its fast-fashion approach, with basic T-shirts and leggings under $5, may not resonate with the growing number of consumers interested in more eco-friendly fashion choices.
The rise in interest in sustainable clothing has led to the success of companies like ThredUp, an e-tailer for secondhand clothes, and has prompted brands like Levi’s and H&M to introduce eco-conscious collections.
Forever 21’s restructuring plans includes closing underperforming locations, a “back-to-basics” merchandising plan, and strengthening its vendor agreements.
The company has not encountered any cash-on-delivery demands or shipping freezes, said Goulding, noting that founder Chang has entered into more than 130 vendor support agreements with key suppliers.
The company’s Canadian subsidiary also filed for and was granted bankruptcy protection by the Ontario Superior Court of Justice (Commercial List) in Toronto.
Goulding noted the retailer’s super-sized stores led to “complicated assortment strategies and triggered inventory management challenges.”
While traditional retailers have been losing out to online shopping, Forever 21 has a strong ecommerce presence, with online sales accounting for 16 percent of all sales, as per court documents.
However, its fast-fashion approach, with basic T-shirts and leggings under $5, may not resonate with the growing number of consumers interested in more eco-friendly fashion choices.
The rise in interest in sustainable clothing has led to the success of companies like ThredUp, an e-tailer for secondhand clothes, and has prompted brands like Levi’s and H&M to introduce eco-conscious collections.
Forever 21’s restructuring plans includes closing underperforming locations, a “back-to-basics” merchandising plan, and strengthening its vendor agreements.
The company has not encountered any cash-on-delivery demands or shipping freezes, said Goulding, noting that founder Chang has entered into more than 130 vendor support agreements with key suppliers.
The company’s Canadian subsidiary also filed for and was granted bankruptcy protection by the Ontario Superior Court of Justice (Commercial List) in Toronto.
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