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Why Did Forever 21 File For Bankruptcy

Forever 21 Closing Stores In Bankruptcy Filing Shows Limits To Fast Fashion

Why Did Forever 21 File For Bankruptcy?

By Richa Naidu, Aishwarya Venugopal

5 Min Read

– Fast-fashion retailer Forever 21 filed for bankruptcy late on Sunday, joining a growing list of brick-and-mortar companies that have seen sales hit by the rise of competition from online sellers like Amazon.com Inc and the changing fashion trends dictated by millennial shoppers.

Forever 21 Inc, the privately held company that helped popularize trendy and cheap clothing, has fallen out of favor with shoppers, in part due to other retailers like Sweden H& M and Spains Zara that churn out affordable styles similar to those recently seen on designer runways.

Younger, more environmentally conscious shoppers are also choosing brands that ethically source garments instead of retailers that use cheap fabrics to make T-shirts that are snapped up for $5. Resale sites like thredUp.com, which calls itself the largest online thrift store, are also growing in popularity.

Forever 21, which has 815 stores in 57 countries, said the restructuring will allow it to focus on the profitable core part of its operations and shut stores in some international locations.

It has requested court approval to close up to 178 U.S. stores outside of its major markets.

On its website on Monday, Forever 21 sales included tops that started at $3 and dresses, handbags and jewelry and pants for $20 and under.

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She said the chain did little to differentiate itself from others.

Forever 21 Is No Stranger To Scandal

If Ariana Grande’s $10 million lawsuit against Forever 21 was the only major controversy in which the company was involved, consumers could maybe look the other way. But Grande’s lawsuit was not at all the first time the retail giant had ruffled shoppers’ feathers.

In December 2018, Forever 21 used a white model to advertise the brand’s Blank Panther-style sweater, which offended many. Forever 21 apologized in a statement for causing offense and noted that it “takes concerns on products and marketing extremely seriously.”

Nearly two years earlier, Forever 21 released a terrifying men’s graphic tee with the statement “don’t say maybe if you want to say no” in large, bold print. Cosmopolitan dubbed the tee “horrifying” and “very rapey,” and, uh, yeah. The brand later removed the t-shirt from its site and provided a statement, apologizing for causing offense.

Forever 21 Announces Tentative Deal To Come Out Of Bankruptcy Stay Open

The deal would allow it to keep stores and e-commerce operations open.

News headlines today: Dec. 23, 2020

Fast-fashion chain Forever 21 announced it reached a tentative $81 million agreement with a buyer to come out of bankruptcy and keep its retail and e-commerce stores open.

“Forever 21 filed a motion with the bankruptcy court seeking approval to sell the Forever 21 business to a new owner,” Forever 21 told ABC News in a statement Monday.

“Once approved the agreement will allow Forever 21 to come out of bankruptcy, keeping its headquarters, stores and E-commerce operations open, providing fashions and trends that customers know and love for years to come,” the statement added.

In a bankruptcy motion, the company revealed Simon Property Group, Brookfield and Authentic Brands Group, and others were among a coalition of buyers bidding $81 million to purchase the once-iconic mall staple.

The mall owners Simon Property Group and Brookfield are among Forever 21’s biggest landlords, the Wall Street Journal reported. Authentic Brands Group is the company that recently swooped in and bought the iconic New York City-based retailer Barneys after it filed for bankruptcy

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Us Retailer Forever 21 Bought Back From Bankruptcy

Retailer Forever 21 has been saved from bankruptcy by three buyers who want to expand internationally.

New owners, Authentic Brands, Simon Property and Brookfield Property, also want to keep open most of the chain’s 448 US stores.

Forever 21 filed for bankruptcy last September as losses mounted from its international locations.

As part of its revamp, it plans to launch new lines of jewellery, footwear and handbags.

The fashion retailer is also looking for a new chief executive to drive the company forward.

Its three owners want to work with new and existing partners to expand in Europe, the Middle East and South East Asia, along with China.

Forever 21 has around 600 stores globally across 57 countries.

When it announced last year it had filed for Chapter 11 bankruptcy protection in the US, Forever 21 said it planned to exit most locations in Asia and Europe, but would remain in Mexico and Latin America.

Some analysts said the retailer had lost its way and fallen out of favour with young US shoppers who preferred cheaper clothing.

Headquartered in Los Angeles, Forever 21, like many of its bricks-and-mortar rivals, has struggled with rising competition from online retailers.

Authentic Brands is a brand management company, Simon Property operates malls and Brookfield Property runs commercial properties.

Being In Malls Didnt Help Forever 21

Why Forever 21 Is Filing for Bankruptcy

As part of Forever 21s vast expansion plan, the brand increased its presence in shopping mallseven as foot traffic dwindled,CBS News noted. It also opened many big-box format stores, averaging about 38,000 square feet, despite the high overhead costs.

Adding more locations to malls was certainly a risk and, unfortunately, one that did not pay off. I expect store closures to accelerate in 2019, hitting some 12,000 by year end, Deborah Weinswig, founder and CEO of retail research company Coresight, predicted when speaking to CNBC.

This doesnt necessarily mean that malls will disappear, though. I think this is a multiyear transition, DJ Busch, an analyst at commercial real estate services firm Green Street Advisors, told the publication. Cleanse out some of these retailers that lasted longer than they should have. Its going to be tough. Anyone who thinks otherwise is too optimistic. But it doesnt mean this is a dead business. It can continue to be a good business as underproductive go away, and the strong landlords invest. While that may be good news for malls, its certainly not for Forever 21.

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Forever 21 Bankruptcy: 5 Reasons Why It May Have Happened

Forever 21 is about to start aging.

The iconic youth-focused fashion retailer announced to its customers on Monday that it indeed is filing for bankruptcy despite its attempts to quash rumors about the business development in a newsletter 10 days prior. Under the U.S. Bankruptcy Codes chapter 11, Forever 21 will remain open while it takes positive steps to reorganize the business.

Up to 178 stores will close throughout the U.S.which is sure to hurt thousands of employees who rely on the retailer for a source of income. Operations are also said to halt in 40 countries.

Forever 21 sent out a newsletter to customers on Sept. 20, telling them not to believe the “misinformed” bankruptcy rumors.

For some devoted shoppers, the announcement comes as a shock. However, a number of brick and mortar stores have struggled to keep money flowing with the rise of ecommerce juggernauts like Amazon providing the convenience of speedy shipping.

Fashion outlets that have shuttered a part of their business or have gone out of business completely include other notable mall staples like Payless, Kohls, Dressbarn, Topshop, Ralph Lauren, Lord & Taylor and more.

Here are five reasons that may have contributed to Forever 21s downfall.

The Real Reason Forever 21 Filed For Bankruptcy

Fast fashion retailer Forever 21 announced in late September 2019 that it had filed for Chapter 11 bankruptcy. “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, the executive vice president of Forever 21, Inc., revealed in a statement to Business Wire. A spokesperson for Forever 21 told CNBC that the company was looking to close as many as 178 stores in the United States and withdrawal from the majority of their locations in Asia and Europe.

It’s hard to imagine a mall without a staple Forever 21 store, but that’s a very real possibility. The clothing store giant, which was founded in 1984, thrived during the Great Recession due to the brand’s affordable prices, CBS News reported. With the American economic crisis mostly behind us, Forever 21 is at risk at being left behind. That’s not to say Forever 21 was simply a victim of a better economy. No, this is where Forever 21 went so wrong and the truth behind the company’s bankruptcy filing.

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Forever 21 Couldn’t Compete With Online Stores

Forever 21 is far from the only company to have filed for bankruptcy in 2019. Many other well-known mall tenants, such as Gymboree, Charlotte Russe, Things Remembered, and Payless ShoeSource, also filed for bankruptcy the same year. Still, Forever 21 was unique from other brands. CBS News noted, “Forever 21 helped popularize fast fashion in the 2000s by hawking trendy but affordable clothes before they had even made it off the runway.” Despite the company’s ability to churn out new styles quickly, more and more consumers started shopping online, and, before long, the formula that made Forever 21 so popular led to its downfall.

“There are risks in the fast-fashion model,” Greg Portell, lead partner at consulting firm A.T. Kearney, explained to the publication. “There is less margin for error particularly as companies grow. If a retailer misreads the trends, they end up with the wrong inventory positions at higher volumes.”

Forever 21 Became Too Much Of A Department Store

Forever 21 files for bankruptcy

As Sonia Lapinsky, the managing director of the retail practice at AlixPartners LLP, noted, Forever 21 would have to start delivering “the right products” in order to bounce back from bankruptcy. That would likely mean scaling back their offerings. As Forever 21 expanded its number of stores across the world, the categories of products the brand offered also grew. The Los Angeles Times noted that it no longer just offered clothes for young women, but “expanded into menswear, children’s clothing, maternity and plus-size apparel and cosmetics, among other items.”

Although diversifying their products to attract more people may not have sounded like a bad idea at the time, it only further alienated their young consumers. Ilse Metchek, president of the California Fashion Association trade group, said today’s teenagers who are looking to buy fast fashion tend to already have an idea of what they want before they get to the store. As such, she said they “want to get in, they want to see it, they want to buy it and get the hell out of there. … They don’t want to go upstairs. It’s too much of a department store.”

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For These Muscular Box Store Versions Of Fast Fashion Like The Primarks Or The H& Ms Of This World What Are They Seeing When They See A Forever 21 Go Belly Up Or Are They Just Waiting For The Ripples To Hit Them Now

I think they are scrambling and theyre trying to figure out how to not let that happen to them. You may see some shifts in policy and the way business is done. Already, H& M has been embracing the sustainability movement. They say by 2020 theyll only be sourcing sustainable cotton. So, H& M is on the ball in trying to make their company somewhat greener but as long as their business model is based on volume, these companies will never be wholly sustainable. I think theyre now scratching their heads saying, How are we going to tweak our business models so we dont wind up like Forever 21?

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Fast Fashion And The Competition

Forever 21 might be known for their quick-turning duplications, but they are not alone in the fast fashion world. Competitors such as H& M and Zara have vied for the same consumer base that wants trendy clothing at an affordable or low-cost price point. Popular London-based ecommerce brands like ASOS and Pretty Little Thing have also taken a swipe at profits with their lucrative celebrity collaborations.

The Instagram famous Los Angeles-based brand Fashion Nova has also given Forever 21 a run for its money with shameless knockoff business strategy that churns out replicated designs in less than 24 hours.

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Forever 21 Files For Bankruptcy Will Shutter Over 100 Stores

Forever 21, which spent years expanding the number and sheer size of its stores, is the latest … mall-based retailer to declare bankruptcy.

Forever 21, a teen apparel retailer that expanded aggressively into malls across America as others pulled back, filed for bankruptcy on Sunday evening.

The retailer ended months of speculation about the state of its business by announcing that it is seeking bankruptcy protection under Chapter 11. Forever 21 will look to close up to 178 stores in the U.S. as part of the restructuring, according to a statement from the company. It will also shutter most of its locations in Asia and Europe. It currently has roughly 800 stores worldwide.

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, said Linda Chang, executive vice president and one of the founders daughters, in a statement.

To continue funding operations during the restructuring, Forever 21 has secured $350 million in financing, which includes $275 million from its existing lender, JPMorgan Chase. It has also obtained $75 million in new capital from TPG Sixth Street Partners and its affiliates.

I came here with almost nothing, Chang told Forbes for a cover story in 2016. Ill always have a grateful heart toward America for the opportunities that it’s provided me.

Retailers Scrambling To Adjust To Changing Consumer Habits

Forever 21 Files for Bankruptcy on Sunday, Here is Why?

“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, the company’s executive vice president, said in a statement.

The company stressed it’s not going out of business, adding that people who come into its stores will have a shopping experience that “will continue to feel like a normal day.”

In the records filed in U.S. Bankruptcy Court for the District of Delaware, the company detailed possible store closures but emphasized that it does not expect to fully exit any major U.S. market.

The company’s leaders also plan to keep operations in Mexico and Latin America, while shutting down stores in Asia and Europe.

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Forever 21 Got Caught Up In Controversy

Just a few weeks before Forever 21 filed for bankruptcy, singer Ariana Grande sued the fast fashion retailer Forever 21 for using her “name, image, likeness and music” without her permission, according to court records cited by Fox Business. Forever 21 first attempted to reach an endorsement deal with the singer, but Grande passed on the offer “due to Forever 21’s unwillingness to pay the fair market value for a celebrity of Ms. Grande’s stature.” The lawsuit claimed that Forever 21 then used Grande’s likeness by “hiring a look-a-like model and posting photos of that model” instead.

Ariana Grande fans may have been miffed by Forever 21’s decision, but the consequences of the controversy likely far outreached just admirers of the singer. American shoppers want to shop with brands they can trust. A Sprout Social survey revealed that 86 percent of American consumers find “transparency from business” to be “more important than ever before.”

Cheap Chic No Longer In Fashion

Forever 21, so named by founder Do Won Chang so shoppers can feel forever youthful, also fell out of style as younger shoppers increasingly demanded higher-quality goods even at low prices. Fast-fashion retailers have also faced criticism for the fashion industry’s toll on the environment. Apparel and footwear production accounts for 8 percent of global greenhouse gas emissions, according to a 2018 report from Quantis.

The retailer, which is known for helping high schoolers dress like their favorite celebrities, is also facing a lawsuit from Ariana Grande, who sued the company for $10 million for allegedly lifting the concept and color scheme from her recent album, “Thank U, Next,” without her approval.

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Popular Fashion Retailer Forever 21 Files For Chapter 11 Bankruptcy

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Low-price fashion chain Forever 21, a one-time hot destination for teen shoppers that fell victim of its own rapid expansion and changing consumer tastes, has filed for Chapter 11 bankruptcy protection.

READ MORE: Calgarys only Forever 21 location closes its doors

The privately held company based in Los Angeles says it will close up to 178 stores. The company once had more than 800 stores in 57 countries.

Forever 21 joins Barneys New York and Diesel USA in a growing list of retailers seeking bankruptcy protection as they battle online competitors. Others like Payless ShoeSource and Charlotte Russe have shut down completely.

The numbers bear out the crisis facing traditional retailers. So far this year, publicly traded U.S. retailers have announced they will close 8,558 stores and open 3,446, according to the global research firm Coresight Research. That compares with 5,844 closures and 3,258 openings in all of 2018.

WATCH: Ariana Grande sues Forever 21 for $10 million

Coresight estimates the store closures could number 12,000 by the end of 2019.

Forever 21 was founded in 1984 and, along with other so-called fast fashion chains like H& M and Zara, rode a wave of popularity among young customers that took off in the mid-1990s.

Their popularity grew during the Great Recession, when shoppers sought fashion bargains.

These trends are happening while discounters like Target have spruced up their fashion assortments, stealing away customers.

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