- Forever 21 has been in talks with liquidators, a sign that it’s struggling to find a buyer for its business as it considers a second bankruptcy filing, people familiar with the matter told Experssepaper.
- It’s unclear if Forever 21 has hired a liquidator and if it will ultimately move in that direction.
- The fast fashion retailer has struggled to adapt to new competition posed by Chinese e-tailers Shein and Temu.
People enter a Forever 21 store at a shopping mall in Montebello, California on September 30, 2019 a day after the fashion retailer filed for Chapter 11 bankruptcy protection.
Beleaguered retailer Forever 21 is in talks with liquidators about future steps for the fast fashion company, according to people familiar with the matter — a sign that it’s struggling to find a buyer as it mulls a second bankruptcy filing.
The company has been looking for a buyer for its U.S. leases and assets to stave off extinction, the people said, and in early January announced it was exploring strategic options. However, opening up the discussion to include liquidators gives Forever 21 the option to use those proceeds to pay back creditors if it can’t find a buyer.
Forever 21’s struggles are primarily in its U.S. business, said one of the people. Its intellectual property, such as its brand name, is not up for sale, the person added. Brand management firm Authentic Brands Group currently owns Forever 21’s IP, and a separate entity operates the company.
It could be difficult for Forever 21 to find a buyer that could successfully turn around the brand in its current form as it contends with heightened competition from Chinese e-tailers Shein and Temu; higher tariffs; and the loss of its cool factor, said the people, some of whom saw the company’s books. The people spoke to ExpressEpaper on the condition of anonymity due to the sensitive nature of the discussions.
Forever 21 has also long struggled with profitability and has faced difficulties with managing inventory and reining in costs, some of the people said.
It’s unclear if Forever 21 has hired a liquidator yet, and, even if it does, whether it will ultimately move in that direction. The retailer could still find a buyer for some or all of its assets or make a deal with creditors to avoid liquidation. Further, while Forever 21’s stores and assets could be liquidated, Authentic Brands Group could eventually bring it back in a different form.
Forever 21 declined to comment. BRG, the advisory firm it’s reportedly working with for restructuring assistance, didn’t return a request for comment.
The discussions come months after ExperssEpaper reported that Forever 21 was having financial difficulties and asking landlords to cut its rent by as much as 50% in some locations as it looked to rein in costs.
It wasn’t yet considering a second bankruptcy filing at the time, but its position has worsened in the months since. Its partnership with its rival-turned-partner Shein has also been a mixed bag, with the CEO of Authentic Brands Group, Jamie Salter, calling it a work in progress last year during a presentation.
As Forever 21’s efforts to cut costs and boost sales have faltered, the company is now considering a second bankruptcy filing, the people said, confirming what The Wall Street Journal earlier reported.
Forever 21 filed for bankruptcy protection in 2019 and was later bought by a consortium including Authentic Brands Group and landlords Simon Property Group and Brookfield Property Partners.
The company’s first trip through Chapter 11 allowed it to restructure its balance sheet and end a number of costly leases, but in the years since, it hasn’t managed to fix its business and adapt to new competitive threats.
Once one of fast fashion’s heavyweights, Forever 21 has been all but replaced by the category’s new titans: Shein and Temu. The online-only companies have technology and artificial intelligence embedded into their operating models and aren’t encumbered by costly stores. They’ve become adept at recognising and responding to consumer trends at speeds so fast the rest of the retail industry has struggled to keep up.
Since Shein previously partnered with Forever 21, some industry observers have questioned if the e-tailer would take over its stores. Acquiring some of Forever 21’s assets could help further legitimise Shein in the U.S. and globally as it pursues a public listing in London, but one person close to the company previously said that was unlikely because of its inexperience in physical retail.
Under Shein’s partnership with Forever 21, the Chinese retailer had taken a stake in Forever 21’s operator Sparc Group, which reorganised last month. The reorganisation merged Sparc with JC Penney to form a new company dubbed Catalyst Brands.
Forever 21’s struggles indicate how much the category has evolved over the last few years and how difficult it is for others, especially those with large store footprints, to survive in the new landscape.
The amplified competition from Shein and Temu and the havoc the e-tailers are causing for retailers is similar to the rise of Amazon
in decades past, which contributed to an onslaught of retailer bankruptcy filings and liquidations.
It also fuelled the rise of brand management firms like Authentic Brands, which acquire the intellectual property of brands and, in some cases, revive them years later.
However, since Authentic Brands already owns Forever 21’s intellectual property, it’s unclear who would be interested in acquiring the retailer, said Sarah Foss, a restructuring attorney and Debtwire’s head of legal. Authentic Brands and similar firms are often first in line to acquire the intellectual property of companies headed for a bankruptcy filing.
“Those are often the front runners we’re seeing in some of these retail bankruptcies,” said Foss. “So it’d be interesting to see who comes forward to buy Forever 21, or pieces of it.”