From big box to bankruptcy: Forever 21 is back in Chapter 11. (Allen J. Schaben / Los Angeles Times … [+] via Getty Images)
Los Angeles Times via Getty Images
Fast fashion retailer Forever 21 has filed for bankruptcy for the second time in six years and said that it would wind down operations, blaming the situation on higher costs and foreign companies taking advantage of duty-free treatment of low-cost packages from China.
It announced that it had entered into a Plan Support Agreement (PSA) with the company’s secured lenders and commenced voluntary chapter 11
Ironically one of those was Chinese powerhouse Shein, which Forever 21 had been showcasing in some of its stores in a bid to boost sales at both retailers. Shein, along with Temu, has taken advantage of a tax loophole for low-cost packages worth below $800 sent direct to American consumers to keep their prices low.
“We’ve been unable to find a sustainable path forward, given competition from foreign fast-fashion companies, which have been able to take advantage of the de minimis exemption to undercut our brand on pricing and margin,” said Brad Sell, finance chief at F21 OpCo, the company that operates Forever 21’s approximately 350 U.S. stores.
President Donal Trump paused his administration’s repeal of the clause as part of the fresh tariffs imposed on China last month.
The PSA is designed to enable the company to move through the Chapter 11 process as quickly and efficiently as possible. Through the PSA and the Chapter 11 proceedings, the company will conduct liquidation sales at its stores while simultaneously conducting a court‑supervised sale and marketing process for some or all of its assets, it said.
The company, which last month said that it was weighing options, also will file a motion with the court seeking authority to market F21 OpCo’s assets through an auction “pursuant to section 363 of the Bankruptcy Code”.
It said: “In the event of a successful sale, the company may pivot away from a full wind down of operations to facilitate a going-concern transaction. The company believes this dual-path process will best maximize optionality and value.”
Forever 21 Founded in Los Angeles
Founded in Los Angeles, Ca. in 1984 by South Korean immigrants, Forever 21 became hugely popular among young shoppers looking for low cost apparel and by 2016 it had expanded to about 800 stores globally, of which 500 were in the U.S.
It also tried to take advantage of the demise of department store anchors in malls around the country in order to open larger and larger stores, but the expansion proved over-optimistic as the international fast fashion market became increasingly competitive and e-commerce but into physical store sales.
Forever 21 is hoping to find a buyer, while international licences are unaffected.
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F21 OpCo is planning for liquidation sales at its U.S. stores, while it goes through a court-supervised sale and marketing process for its assets, which it estimated to be worth between $100 million to $500 million. Its U.S. stores and website will remain open through the process and its international stores remain unaffected by the bankruptcy proceedings.
The company has liabilities in the range of $1 billion to $10 billion, according to a filing with bankruptcy court in the district of Delaware.
Second Forever 21 Bankruptcy
Forever 21 had previously filed for Chapter 11 bankruptcy protection in 2019 and was brought out of it by Sparc Group, a joint venture between multi-brand owner Authentic Brands Group and mall landlord giants Simon Property and Brookfield Asset Management.
It is now owned by Catalyst Brands, an entity formed on Jan. 8 through the merger of Sparc and department store chain JCPenney, which has been owned since 2020 by mall operators and Simon Property Group.
Forever 21’s locations outside of the U.S. are operated by other licensees and are not included in the Chapter 11 filings. Authentic Brands Group continues to own the intellectual property associated with the Forever 21 brand and may license the brand to other operators, while the non-U.S. Forever 21 locations and its international ecommerce sites will continue operating.
