FOREVER 21, a popular multinational fast-fashion retailer, is preparing to close 200 more locations as it grapples with ongoing financial trouble.
Part of a potential second bankruptcy process, the closures follow Forever 21’s initial Chapter 11 filing over five years ago.
The beloved mall retailer operated over 500 US stores and at least 800 worldwide at its peak.
However, Forever 21 has faced a number of challenges over the years, eventually filing for bankruptcy in 2019.
The chain has since shuttered hundreds of stores, with new plans to close hundreds more.
Forever 21’s US-based operator is preparing to shut down 200 or more stores as part of a second bankruptcy process that could start as early as March, people with knowledge of the matter told Bloomberg.
The company would also seek a potential buyer for the remaining Forever 21 stores as part of the Chapter 11 filing, liquidating the estimated 350 locations if a suitable buyer does not step forward.
How does bankruptcy work?
Bankruptcy is a specific legal process that helps companies eliminate debt they can't repay.
The process allows businesses to start fresh and gain access to new credit.
Supervised by federal courts, bankruptcies allow a company to sell off its assets more easily to pay off creditors, according to Investopedia.
Chapter 11, a common process for companies, is used to restructure a business with the goal of remaining open – even if it means selling off most of the company’s properties.
Chapter 7, on the other hand, sells all of a company’s assets, putting it out of business.
Chapter 15, alternatively, allows for collaboration between American and foreign courts to conduct bankruptcy proceedings with “parties of interest involving more than one country,” per the United States Courts.
“Forever 21’s operating company, which is the brand licensee in the US, continues to explore strategic options, including a potential sale, while also reducing costs and optimizing its store footprint,” a representative for Forever 21’s operations owner Catalyst Brands shared with Bloomberg.
“The efforts are ongoing and no final decisions regarding the outcome of the process have been made.”
Several of the locations potentially closing have faced financial losses over the years, with Forever 21 frequently withholding royalty and rent payments to keep them up and running.
Forever 21’s trademarks and intellectual property are owned by Authentic Brands, which licenses them to its US operator, F21 OpCo., now part of Catalyst Brands alongside JCPenney and SPARC Group.
Catalyst Brands is backed by shareholders including Simon Property Group, Brookfield Corp., Authentic Brands, and Shein.
Regardless of any potential bankruptcy or sale of Catalyst Brands, Authentic Brands plans to continue licensing the Forever 21 brand to other retailers and distributors.
BANKRUPTCY BUST
Forever 21 first filed for bankruptcy in September 2019 following months of speculation about its restructuring.
The filing was the result of many struggles over the years, including drops in foot traffic, accumulating debt, and reputation damages from environmentalists and labor rights groups.
Forever 21 also expanded too quickly, facing high rental costs and an inability to invest in its supply chain.
Additionally, the chain took a hit due to increasing competition from other fast-fashion retailers like H&M and Zara.
Its lacking e-commerce business also contributed to Forever 21’s bankruptcy filing.
At the time, the company announced plans to shutter between 300 and 350 stores, with as many as 178 US locations slated to close.
US braces for '45,000 store closures'
Some 45,000 bricks-and-mortar stores could close in the next five years, experts have warned.
Several major retailers have announced store closures or gone out of business altogether in recent years.
In 2023, chains such as Foot Locker announced plans to close up to 400 outlets by 2026.
While, other well-known retailers like Tuesday Morning and Mitchell Gold + Bob Williams filed for bankruptcy in 2023.
Bed Bath & Beyond has closed all of its brick-and-mortar stores and is now an online-only retailer.
The most affected retailers have been clothing, consumer electronics, sporting goods, hobby, book, music, and home furnishing stores since the start of 2019.
UBS has predicted the total number of retail stores will drop by 45k from 958k to 913k.
Despite that, the report says that certain stores should thrive while others decline.
It said retailers such as Walmart, Costco, Home Depot, and Target, could be among the winners.
Forever 21 also planned to exit “most of its international locations in Asia and Europe.”
The Chapter 11 bankruptcy filing 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,” executive vice president Linda Chang said at the time.
Other beloved retailers have similarly struggled over the years, filing for bankruptcy and conducting mass store closures.
For example, Party City set out to close all its stores following 40 years in business and a recent exit from bankruptcy.
Plus, JoAnn confirmed that 530 stores would close down after its second bankruptcy filing in one year – and the CEO warned it could be more.
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