Clothing Retail Giant Forever 21 Files for Bankruptcy Protection

Clothing retailer Forever 21 has reported they will file for chapter 11 bankruptcy protection in the US. Another victim of changing trends as shoppers shift to e-commerce.

The Los Angeles-based company plans to keep operating while it works out a plan to shut unprofitable stores. Forever 21 also operates about 800 stores in the US, Europe, Asia and Latin America.

Forever 21 became popular among teenagers in the 2000s for its affordable but eye-catching designs. Its signature bright-yellow shopping bags slowly became a rarer sight. As Generation Z consumers — those born from 1998 onwards — shifted rapidly over to e-commerce and street-wear brands.

The bankruptcy filing could help Forever 21 also get rid of unprofitable stores. Raise fresh funds, allowing the private, family-held company to restructure its flailing business.

Forever 21 has obtained $275 million in financing from lenders with JPMorgan Chase & Co as agent. As well as $75 million in new capital from TPG Sixth Street Partners and its affiliated funds.

Exiting Asia and Europe Markets

It plans to exit most of its international locations in Asia and Europe. Forever 21 will continue operations in Mexico and Latin America. The stores expect to honor gift cards, returns and exchanges.

“The financing provided by JPMorgan and TPG Sixth Street Partners will arm Forever 21 with the capital necessary to effect critical changes in the US and abroad.

Linda Chang, executive vice-president of Forever 21, said told Bloomberg news that revitalizing their brand would fuel new growth. Allowing them to meet our ongoing obligations to customers, vendors and employees.”

The bankruptcy filing followed months of discussions with stakeholders over how to turn around the business.

Among those parties are the retailer’s biggest landlords. Including mall owners Simon Property Group Inc and Brookfield Property Partners LP.

While the parties have swapped proposals, they also haven’t reached a deal. Just four landlords hold almost 50% of the company’s leases.

Court papers, show Forever 21 has estimated liabilities on a consolidated basis of between $1 billion and $10 billion.

Asks Bankruptcy Court to Pay the Employees

It employs about 6,400 full-time and 26,400 part-time workers. The company has filed a motion asking for court permission to pay its employees. This is typical in first-day bankruptcy hearings.

Founded in 1984, Forever 21 specialized in fast-fashion apparel. Trendy, made knockoffs of similarly original designs. Its competitors include Zara, H&M and above all Amazon.com.

Co-founder Do Won Chang has been focused on maintaining a controlling stake in Forever 21, which also hindered efforts to raise new funds. Matters are also out of his hands now, with creditors typically setting the agenda in bankruptcy proceedings. The major decisions will be made subject to a judge’s approval.

Forever 21 entered Thailand in 2008 through a subsidiary of the United Arab Emirates-based Sharaf Group. It had four branches in Greater Bangkok before closing down in mid-June last year.

Source: Bloomberg News