Forever 21 Files Chapter 11, Seeks a Buyer to Keep U.S. Stores, Website in Operation
The other shoe dropped for Forever 21 on Sunday night when the teen retailer filed for bankruptcy for the second time and began the process of winding down its U.S. operations.
The Chapter 11 filing is for F21 OpCo LLC, operator of the company’s U.S. stores and licensee of the Forever 21 brand. The retailer’s intellectual property and international operations are not impacted.
Looking for a quick process, the company will hold liquidation sales at its stores while simultaneously conducting a court-supervised sale and marketing process for some or all of its assets. The company will also file a motion with the court seeking the authority to market F21 OpCo’s assets through an auction. If an interested buyer is found, the company said, it may pivot away from a full wind-down of the business.
For the time being, the company’s stores and website in the U.S. will remain in operation. F21 OpCo has filed motions with the court seeking approval to use its cash to pay employee wages and benefits and other expenses to keep the business operating through the Chapter 11.
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Forever 21 was purchased out of bankruptcy for around $300 million in February 2020 by Authentic Brands Group, Simon Property Group and Brookfield Property Partners, which bought the intellectual property and operating businesses. Today Authentic owns the intellectual property and the operating company is a separate entity.
In a statement released early Monday, Jarrod Weber, global president, lifestyle of Authentic Brands Group, said: “Forever 21 is one of the most recognizable names in fast fashion. It is a global brand rooted in the U.S. with a strong future ahead. Retail is changing and, like many brands, Forever 21 is adapting to create the right balance across stores, e-commerce and wholesale.
“Our U.S. licensee’s decision to restructure its operations does not impact Forever 21’s intellectual property or its international business. It presents an opportunity to accelerate the modernization of the brand’s distribution model, setting it up to compete and lead in fast fashion for decades to come.
“We’re building a direct creation-to-shelf model that moves faster. It will accelerate production cycles and deliver the best products at the best prices. We are receiving lots of interest from strong brand operators and digital experts who share our vision and are ready to take the brand to the next level.”
The fast-fashion teen retailer, which was founded in Los Angeles in 1984 by South Korean immigrants Do Won Chang and his wife Jin Sook Chang, had been in the media spotlight for the past few weeks following Worker Adjustment and Retraining Notification, or WARN, notices that were filed in California and Pennsylvania indicating that nearly 700 people in those states would be laid off. More than 350 work at the company’s headquarters in Los Angeles, which is also slated for closure.
In early January, Authentic, Simon, Brookfield and Shein came together to form Catalyst Brands, a new $9 billion organization consisting of six retail chains and more than 1,800 stores under the brands Aéropostale, Brooks Brothers, Eddie Bauer, Lucky Brand, Nautica and JCPenney. Absent from that list was Forever 21 and the companies said at that time that they were exploring strategic options for the business. However, the Forever 21 operating company was not part of that merger.
Jamie Salter, chief executive officer of Authentic, previously said publicly at an investment conference that acquiring Forever 21 was “probably the biggest mistake I made.”
At its peak, Forever 21 had sales of $4.1 billion, employed 43,000 people and operated in 57 countries. Early on, its primary competitors were H&M and Zara but today, the Chinese behemoths Shein and Temu have become the poster children for the fast-fashion model. In addition, Forever 21’s stores are often too large and the company expanded too quickly. However, Shein carries Forever 21 on its marketplace, a deal Salter inked in the fall of 2023, and that relationship will continue. The Shein platform boasts more than 150 million users. In addition, the company’s deal with JCPenney, which offers the brand as its fast-fashion anchor in some 650 stores, will also remain in place, a spokesperson for Authentic said.
Brad Sell, chief financial officer of F21 OpCo, said, “Following the conclusion of our strategic review and after careful deliberation, we made the decision to file for Chapter 11 to implement a court-supervised marketing process to solicit a going concern transaction, and, in the absence of such an arrangement, an orderly wind-down of operations. While we have evaluated all options to best position the company for the future, we have 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, as well as rising costs, economic challenges impacting our core customers and evolving consumer trends.”
Neil Saunders, managing director of GlobalData, wasn’t surprised to hear about Forever 21’s fate. “Forever 21 was always a retailer living on borrowed time. Over recent years it has been hit with dual headwinds from a weak apparel market and stiff competition from cheap Chinese marketplaces. Both things have eroded its standing and depleted its market share,” he wrote in a note on Monday.
He said the company’s merchandising and assortment have been “lackluster, and the brand has lacked any clear point of view for a long time. The net result is that more and more customers, especially those at the younger end of the market, have abandoned it.”
He said Forever 21 “was a retailer built for a different era. Most of its stores are way too large for its present needs. It is also exposed to too many weaker malls where foot traffic has been under pressure.”
He said he hoped the brand will be sold so that it could at least remain as an online operation and possibly licensee. “This would make Forever 21 a shadow of its former self, but…the price, however, would need to reflect its now-diminished status.”
