A month after reports began to surface that Forever 21 was considering filing for bankruptcy, the retailer officially confirmed that it has filed for Chapter 11. The company will facilitate a global restructuring strategy that includes closing up to 178 of its 549 U.S. stores and exiting most international locations in Asia and Europe. Including the Asian and European exits, Forever 21 anticipates shuttering 300 to 350 stores in total.
The decisions as to which domestic stores will close are ongoing, pending the outcome of continued conversations with landlords, according to a note shared on Forever21.com. Forever 21 will continue operating in Mexico and Latin America and does not expect to exit any major markets within the U.S.
The retailer hired restructuring advisers in June to help negotiate store leases and overhaul the business, but the company was unable to find a way to avoid bankruptcy. To facilitate the restructuring, Forever 21 has obtained $275 million in financing from its existing lenders with JPMorgan Chase Bank, as well as $75 million in new capital from TPG Sixth Street Partners and affiliated funds.
Forever 21 will use the capital to meet ongoing obligations to customers, vendors and employees, according to Linda Chang, EVP of Forever 21.
“With support from our key landlord and vendor constituents, we are confident we will emerge as a stronger, more competitive enterprise that is better positioned to prosper for years to come, and we remain committed to delivering the fast fashion trends that our customers have come to expect from Forever 21,” Chang said in a statement.
Traditional “mall-based” retailers that specialize in selling apparel to teens and young adults have struggled in recent years as fashion cycles accelerate, resale gains significant market share and younger buyers continue their shift from the mall to online.A number of teen apparel chains have filed for bankruptcy in recent years, with Charlotte Russe and Charming Charlie the most recent in 2019. Mall-based chains including Styles For Less, Aéropostale, Rue21 and American Apparel all have filed for bankruptcy since 2016 before emerging with a leaner footprint and less debt.
Despite the harsh news, Dave Bernstein, SVP, Retail Lead, North America at Publicis Sapient, noted that Forever 21 is “still a very powerful brand that is more valuable than you would think a company entering bankruptcy would appear.”
“I expect they will recover from this, but it’ll take extra marketing work to do it,” Bernstein said in commentary provided to Retail TouchPoints. “Their core customers are different 21-year-olds than was the case 10 years ago. Topics never mentioned in 2010 like sustainability and social stance are now top of mind for consumers. Forever 21’s business model of an everchanging display of what’s new is being eclipsed by firms like Rent the Runway and thredUP with business models that promote sustainability.”
Another factor that could contribute to a Forever 21 rebirth is that the company still owned by its founders. That’s in contrast to retailers like Sears and Toys ‘R’ Us, which declared bankruptcy after being purchased by private equity firms, piling on billions in debt that the companies often have difficulty paying.