Financial news

Forever 21 bankruptcy puts 350 stores at risk

By  | 

Forever 21, the fashion retailer whose constantly changing styles and low prices once made it a hit among young women, has filed for bankruptcy protection, felled by intense competition and its own aggressive global expansion.

After weeks of questions about its future, the California-based company said on Sunday night that it planned to shut as many as 350 of its 800 stores around the world as part of a Chapter 11 restructuring.

In the latest blow to shopping malls and high streets grappling with a wave of retail failures, most locations in Asia and Europe have been earmarked for closure, along with up to 178 in the US.

The privately owned chain was founded in 1984 by husband and wife Do Won and Jin Sook Chang, Korean immigrants to the US who opened their first store in Los Angeles.

Forever 21 became popular among fashion- and budget-conscious teenage girls and expanded rapidly.

As well as its huge stores, the chain became known for quirks including Bible passages printed on its carrier bags that reflected the family’s Christian beliefs. It was also unwilling to offer customers special deals on the basis that “the first price should be the right price”.

More recently, however, Forever 21 lost ground to rivals such as H&M and Primark, and its styles have fallen out of favour. Environmentally conscious shoppers also increasingly question the sustainability of fast fashion.

“Forever 21 has been found wanting against that backdrop,” said Neil Saunders, managing director of the GlobalData Retail consultancy. “The brand has lost a bit of its cachet.”

READ ALSO  Will Artificial Intelligence End the Austrian School of Economics?

He said the company’s already thin profit margins had made it difficult to turn make money online, and noted the chain’s “extraordinary large” bricks and mortar stores. “When sales become lacklustre, that means the model becomes unprofitable,” he said.

Forever 21, which is still owned by the Chang family, said in a statement it hoped to “return to basics that allowed the company to thrive and grow into the fast fashion leader”.

Linda Chang, executive vice-president and daughter of the founders, said: “This was an important and necessary step to secure the future of our company.” 

Forever 21 said the location of US stores to be closed had yet to be determined and would depend on “conversations with landlords”. It did not immediately respond when asked how many jobs were under threat.

The company said it planned to focus on a “profitable core” and maintain a presence in the US cities in which it currently operates. It said it would also continue operations in Mexico and Latin America.

Its demise adds to a growing list of bankruptcies this year in US retail. Other recent failures include luxury department store chain Barneys New York and Diesel USA. In total US retailers have announced about 8,000 store closures this year, according to Coresight Research.

To help the chain continue to trade during the bankruptcy proceedings, lenders led by JPMorgan Chase Bank have agreed to provide $275m in financing and TPG Sixth Street Partners will inject $75m.

Via Financial Times

Print Friendly, PDF & Email

Hold dit netværk orienteret