Forever 21 files for bankruptcy in the US: what went wrong?

Forever 21’s US operating company, F21 OpCo, has filed for Chapter 11 bankruptcy for the second time in six years, citing declining mall traffic and mounting competition from online retailers.

While F21 OpCo operates Forever 21’s US locations and holds the brand’s license in the country, its international stores remain unaffected as they are operated by independent licensees.

The filing, made in the US Bankruptcy Court in Delaware on Sunday, signals a likely liquidation of its US operations, as the company has been unable to find a buyer for its approximately 350 domestic stores.

The company announced that it will conduct liquidation sales at its physical stores while also engaging in a court-supervised sale and marketing process for some or all of its assets.

What bankrupted Forever 21 in the US?

Chief Financial Officer Brad Sell pointed to intense competition from foreign fast-fashion companies that have leveraged the de minimis exemption—allowing duty-free imports of lower-cost clothing—to undercut Forever 21’s pricing and margins.

He also cited rising costs and broader economic challenges that have impacted consumer demand.

Forever 21 previously filed for Chapter 11 in 2019 before being acquired out of bankruptcy by Sparc, a joint venture between Authentic Brands Group (ABG), Simon Property Group, and Brookfield Asset Management.

However, despite efforts to revive the brand, the shift in consumer shopping habits away from malls and toward online fast fashion has continued to pressure the business.

Forever 21’s estimated assets are listed between $100 million and $500 million, while its liabilities fall between $1 billion and $10 billion, according to its bankruptcy filing.

The company also reported having between 10,001 and 25,000 creditors.

Forever 21’s future

If a successful sale of assets occurs, Forever 21 may reconsider a complete wind-down of its operations in favor of a going-concern transaction.

For now, the company has assured that its US stores and website will remain operational while liquidation and sale proceedings take place.

The filing comes just weeks after Forever 21’s parent company, Sparc Group, merged with JCPenney to form Catalyst Brands.

At the time of the merger, Catalyst Brands had indicated that it was “exploring strategic options” for Forever 21, but no clear turnaround path emerged.

Although F21 OpCo is headed for liquidation, the Forever 21 brand itself could survive in some form.

Authentic Brands, which retains ownership of the trademark and intellectual property, may look to license the name to other retailers.

However, ABG CEO Jamie Salter previously expressed regret over acquiring Forever 21, calling it “the biggest mistake I made.”

Founded in Los Angeles in 1984 by South Korean immigrants, Forever 21 was once a dominant player in the fast-fashion industry, catering to young shoppers seeking trendy and affordable clothing.

At its peak in 2016, the company operated around 800 stores worldwide, including 500 in the US.

However, changing retail dynamics and increasing competition from online players have eroded its market position, ultimately leading to its second bankruptcy in less than a decade.

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