FOREVER 21 IS THE LATEST RETAILER TO FILE FOR BANKRUPTCY
Fast-fashion retailer Forever 21 is the latest store chain to fall victim to changing consumer buying habits and demands.
The 35-year-old retailer filed chapter 11 cases in the United States Bankruptcy Court for the District of Delaware on Sunday. The company also announced that its Canadian subsidiary filed for and was granted protection under the companies’ Creditors Arrangement Act by the Ontario Superior Court of Justice in Toronto.
Forever 21 intends to use these proceedings to facilitate a global restructuring that will allow the company to focus on a profitable core part of its operations. As part of its restructuring strategy, the company plans to exit most of its international locations in Asia and Europe, but will continue operations in Mexico and Latin America.
The retailer will, in turn, close 350 stores as it pulls its business from 40 countries. Nearly half the closures will be in the United States; the rest will be scattered throughout Asia, Europe and Canada.
In its bankruptcy filing, the company said it owes $1 billion to $10 billion to more than 100,000 creditors, including Simon Property Group (owed $8.1 million), Brookfield Properties (owed $5.3 million) and FedEx (owed $3.4 million), filings show.
“This 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,” Linda Chang, executive vice president of Forever 21, said.
Forever 21 has received $350 million for restructuring, which it will use to sustain normal business as it tries to “right size its store base and return to the basics that allowed the company to thrive and grow,” the retailer said in a news release.
The retailer was founded in 1984 in Los Angeles by Do Won Chang and Jin Sook Chang. The husband and wife saved for three years before opening their first store, originally called “Fashion 21.” From the beginning, they centered their business on affordable, of-the-moment clothing, much of which came from wholesale closeouts that allowed the company to get its merchandise directly from the manufacturers at a lower cost.
That first year, it made $700,000 in sales. At its peak, in 2015, revenue exceeded $4 billion.
The company expanded rapidly from there, opening locations in dozens of countries. The stores also got bigger; the average Forever 21 store is 38,000 square feet, according to the company’s website. Over time, family-owned company also expand beyond its core customer — teenagers and women in their 20s — by moving into men’s and kids’ clothing, makeup and home decor.
Forever 21′s aggressive expansion in the past decade coincided with seismic shifts in retail, largely brought on by Amazon. The store always faced competition from such fast-fashion rivals as H&M and Zara, but the rise of e-commerce unleashed a wave of new competitors and imitators also geared toward hip and cheap. Just 16 percent of Forever 21′s sales came from e-commerce last year.