Dive Brief:
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Citing inflation, consumer weakness and competition from the likes of Temu and Shein, Forever 21’s operating business filed for Chapter 11 bankruptcy protection on Sunday and is winding down. The company said it’s trying to sell itself but has failed so far.
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Unless it finds a buyer, Forever 21 will close all 354 U.S. stores by May 1, a process begun in late February. Last month the company already closed about 236 stores, and last year it closed about 34, per filings with the U.S. Bankruptcy Court for the District of Delaware.
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Forever 21 has lost more than $400 million over the last three fiscal years, about $150 million last year alone, and is on track to lose $180 million in EBITDA this year, per court documents. Simon Property Group, Brookfield Property Partners and Authentic Brands Group acquired the retailer out of bankruptcy in 2020.
Dive Insight:
A few years ago, Simon, Brookfield and Authentic likely believed that the $81 million they paid for Forever 21 was a bargain. But at that point, there were already signs that fast-fashion sales were slowing.
In 2021, more analysts predicted that fast fashion would fall out of favor as some consumers increasingly opted for more sustainable apparel. Meanwhile, anyone still interested in cheap, disposable fashion had new options. In 2021 Shein became the largest fast-fashion retailer in the U.S.: The fast-fashion market here grew 15% in the first half of the year while Shein grew by nearly 160%. Chinese brands including Temu and Shein shrugged off copyright concerns, made the “fast fashion” of Forever 21, H&M and Zara look slow, and reached Gen Z customers via TikTok.
Sparc Group (now Catalyst Brands), a joint venture of Simon and Authentic that ran Forever 21’s operating company, attempted a can’t-beat-em-join-em approach, inking a deal with Shein in 2023 that allows the rivals to distribute each other’s products.
But Forever 21 hasn’t been able to keep up with the pricing advantage that Shein enjoys thanks to the “de minimis exemption,” which spares goods valued under $800 from import duties and tariffs, according to a filing Sunday from Stephen Coulombe, co-chief restructuring officer of Forever 21’s operating company.
The exemption was slated to end as part of the Trump administration’s tariff policies, but was later reinstated.
“Despite wide-spread calls from U.S. companies and industry groups for the U.S. government to create a level playing field for U.S. retailers by closing the exemption, U.S. laws and policies have not solved the problem,” Coulombe said. “Sparc ... attempted to counteract these operational challenges by partnering with Shein in 2023 and seeking relief from the exemption (or a closure of the exemption), but these efforts have not resulted in any changes to the exemption nor stemmed the Company’s losses.”
Forever 21’s declines and disadvantages aren’t helping it attract suitors. In fact, Authentic CEO Jamie Salter has expressed buyer’s remorse, stating in 2024 that acquiring the brand was “probably the biggest mistake I made.” Catalyst has been seeking strategic alternatives for Forever 21’s operating company since it took over Sparc earlier this year.
While the company has faced stiff competition and other challenges, it also has itself to blame to some extent, according to GlobalData Managing Director Neil Saunders.
“Merchandising and the assortment have been lackluster, and the brand has lacked any clear point of view for a long time. The net result is that more and more customers, especially those at the younger end of the market, have abandoned it,” he said in emailed comments, adding that its stores are too large and in too many weak malls.
“Unfortunately, Forever 21 was a retailer built for a different era,” he said.
Technically, it is the U.S. operating company, which licenses the Forever 21 brand, that is in bankruptcy court; Authentic still owns the brand’s intellectual property and may license it to other operators, according to a Sunday press release. Forever 21 locations and e-commerce sites outside the U.S. are operating under other licensees and are not included in the Chapter 11 filings.
If the company does find a buyer, it may pivot away from the full winddown of its operations and toward a going-concern transaction, per the release.
“This would make Forever 21 a shadow of its former self, but a sale is possible as ecommerce and brand groups may show some interest,” Saunders said. “The price, however, would need to reflect its now diminished status.”
