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Retail apocalypse: Fast-fashion retailer Forever 21 files for bankruptcy

Sep 30 2019 13:26
Eliza Ronalds-Hannon and Lauren Coleman-Lochner

Forever 21 has filed for bankruptcy protection, the latest big fashion merchant who couldn’t cope with high rents and heavy competition as the shift to e-commerce cut a swathe through traditional retailers.

Court papers filed in Wilmington, Delaware, show Forever 21 has estimated liabilities on a consolidated basis of between $1bn (around R15bn) and $10bn (around R150bn). The Chapter 11 filing allows the Los Angeles-based company to keep operating while it works out a plan to pay its creditors and turn around the business.

Forever 21 has obtained $275m in financing from lenders with JPMorgan Chase & Co as agent, as well as $75m in new capital from TPG Sixth Street Partners and its affiliated funds. It plans to exit most of its international locations in Asia and Europe, but will continue operations in Mexico and Latin America. The stores expect to honor gift cards, returns and exchanges.

Once popular

Once popular among teenagers in the 2000s for its affordable but eye-catching designs, Forever 21’s signature bright-yellow shopping bags have become a rarer sight as Generation Z consumers - those born from 1998 onwards - shifted rapidly over to e-commerce and streetwear brands in recent years. The bankruptcy filing could help Forever 21 get rid of unprofitable stores and raise fresh funds, allowing the private, family-held company to restructure its flailing business for a new generation.

“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 to revitalise our brand and fuel our growth, allowing us to meet our ongoing obligations to customers, vendors and employees,” Linda Chang, executive vice president of Forever 21, said in a statement.

Bloomberg first reported August 28 that Forever 21 was preparing for a bankruptcy filing.

Forever 21’s bankruptcy filing could be problematic for major US mall owners, including Simon Property Group and Brookfield Property Partners, because it is one of the biggest mall tenants still standing after a wave of bankruptcies. The busts emptied more than 12 000 stores in the past two years, and those vacancies may be hard to fill.

Hundreds of stores

Simon counts Forever 21 as its sixth-largest tenant excluding department stores, with 99 outlets covering 1.5 million square feet as of March 31, according to a filing.

Simon and Brookfield were both listed in court papers on Forever 21’s tally of biggest unsecured creditors. The retailer doesn’t have a lot of leverage over its landlords, according to Bloomberg Intelligence, which said in a September 27 report that Forever 21 accounts for just 1.4% of Simon’s annual rent.

Founded in 1984, Forever 21 operates more than 800 stores in the US, Europe, Asia and Latin America. It specialises in fast-fashion apparel - trendy, cheap, quickly-made knockoffs of original designs that often is worn only a few times before being given away or tossed out. Competitors include Zara, H&M and Amazon.com.

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

Kirkland & Ellis LLP is the company’s legal adviser, and Alvarez & Marsal is the restructuring adviser, and the investment banker is Lazard.

forever 21  |  companies  |  retail
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