The operator of Forever 21 has filed for bankruptcy for the second time in six years, citing “competition from foreign fast fashion companies,” rising costs and other economic challenges.
F21 OpCo, the operator of Forever 21, announced the voluntary Chapter 11 filing in the U.S. Bankruptcy Court for the District of Delaware on Sunday. The company said it will begin winding down its U.S. business while searching for a potential buyer for all of its remaining assets.
Forever 21’s U.S. Stores and website will remain open and online as operations shutter, according to F21 OpCo. To pay Forever 21’s employees, the operator said it filed motions with the court that will allow them to use cash collateral for wages and benefits.
According to local reports, Forever 21 locations had begun closing locations in several states, including Connecticut, California, Washington state, Pennsylvania, Idaho and North Dakota. Last month, the company disclosed its plans to lay off about 358 employees and shut down its headquarters in Los Angeles, California.
“While we have evaluated all options to best position the Company for the future, we have been unable to find a sustainable path forward, given competition from foreign fast fashion companies, which have been able to take advantage of the de minimis exemption to undercut our brand on pricing and margin, as well as rising costs, economic challenges impacting our core customers, and evolving consumer trends,” Brad Sell, chief financial officer of F21 OpCo, said in a news release.
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“As we move through the process, we will work diligently to minimize the impact on our employees, customers, vendors and other stakeholders,” Sell said.
Here’s what to know about Forever 21’s recent bankruptcy filing.
Why did Forever 21 file for bankruptcy?
One of the primary reasons for Forever 21’s bankruptcy filing is competition from Shein and Temu, something the head of Authentic Brands, the fast fashion retailer’s brand and intellectual property owner, seemingly forecasted a year ago.
Jamie Salter, the CEO of Authentic Brands, spoke during a conference last year and said Forever 21’s partnership with Shein, which came to be in 2023, only yielded modest results, according to Retail Dive.
Salter said before Authentic Brands and mall owners, Simon Property Group and Brookfield Corporation, saved Forever 21 from bankruptcy five years ago, he “didn’t see Shein” and “didn’t see Temu,” per Retail Dive. The CEO added that he and his partners decided to partner with Shein because their “supply chain is too good” and they knew they could not “beat them.”
Sell, the CFO of F21 OpCo, said foreign fast fashion companies take advantage of the de minimis exemption, which allows shipments of items valued at or under $800 to enter the U.S. duty-free and with very little paperwork. This exemption helps Chinese online retailers, such as Shein and Temu, keep clothing prices markedly low.
President Donald Trump halted his administration’s repeal of the exemption in February after the rapid change created disruptions for customs inspectors, postal and delivery services and online retailers.
What’s next for Forever 21?
Forever 21’s operator will look for a buyer of the retailer’s assets, but until then, its stores will remain open and business will commence as usual. And while going-out-of-business sales have not been announced, Forever 21 is advertising some significant discounts, with its online storefront currently offering up to 80% sitewide and up to 70% on select styles.
“On behalf of the Company, I’d like to express our deep appreciation for the hard work of our dedicated employees and their commitment to our customers,” Sell said in the release. “We are also grateful for the many years of support from our partners and our loyal customers, who have allowed us to serve as a fashion industry leader and go-to retailer for generations.”
Sarah Foss, who is head of legal at Debtwire and an expert bankruptcy lawyer, also pointed out to USA TODAY that the company’s retail stores closing would “not mean the end of Forever 21” as Authentic Brands Group owns the brand and intellectual property.
“Forever 21 is one of the most recognizable names in fast fashion. It is a global brand rooted in the U.S. with a strong future ahead. Retail is changing, and like many brands, Forever 21 is adapting to create the right balance across stores, e-commerce and wholesale,” Jarrod Weber, global president for lifestyle at Authentic Brands, told USA TODAY in a statement on Monday.
“Our U.S. licensee’s decision to restructure its operations does not impact Forever 21’s intellectual property or its international business,” Weber said. “It presents an opportunity to accelerate the modernization of the brand’s distribution model, setting it up to compete and lead in fast fashion for decades to come.”
Additionally, Weber said Authentic Brands will look to “take the brand to the next level” by building a direct creation-to-shelf model that will accelerate production cycles and “deliver the best products at the best prices.” He added that the company has received a lot of interest from brand operators and digital experts to move forward with this strategy.
Contributing: Reuters
