Forever 21 Will File for Bankruptcy
Forever 21, the private, family-held company announced that it would cease operations in 40 countries, including Canada and Japan, as part of a Chapter 11 filing. It will close up to 178 stores in the United States and up to 350 over all. Forever 21 said that it would continue to operate its website as well as hundreds of stores in the United States, Mexico and Latin America.
“What we’re hoping to do with this process is just to simplify things so we can get back to doing what we do best,” Linda Chang, the chain’s executive vice president, said in an interview. Ms. Chang’s parents, Do Won and Jin Sook Chang, who still run the chain, founded Forever 21 in the 1980s.
“We went from seven countries to 47 countries within a less-than-six-year time frame and with that came a lot of complexity,” Ms. Chang said. At the same time, she said, “the retail industry is obviously changing — there has been a softening of mall traffic and sales are shifting more to online.”
Forever 21, which said e-commerce made up 16 percent of its sales, saw its revenue drop to $3.3 billion last year, down from $4.4 billion in 2016. It expects the restructured company to bring in $2.5 billion in annual sales. The company employs about 32,800 people, down from 43,000 in 2016.
The retailer, which did not pay rent on its stores in September in order to preserve capital, believes it can renegotiate many of the leases on its United States stores after the filing, said Jon Goulding, an executive at the consultancy Alvarez & Marsal who will be Forever 21’s chief restructuring officer during the proceedings. He said liquidations might begin Oct. 31 for the stores that are closing and that he anticipated the final count to be below 178.
“A number of these folks don’t want boxes back of the size we have with what’s going on in the mall space,” he said of the chain’s landlords.
Forever 21 “placed their bets on this notion that fast fashion was going to continue the same way it had for the last decade or so, and that they just needed to be in the right locations and create newness with some of the spinoffs they were playing around with,” Ms. Liebmann said. “The emotional and physical aesthetic of it is not something that the current shopper wants as much.”
Mark A. Cohen, the director of retail studies at Columbia Business School, said that he believed fast fashion was as popular as ever, pointing to the success of Zara, but that Forever 21 had expanded far too quickly “without regard to a reasonable outlook.”
“It’s a self-inflicted catastrophe,” he said. “This is a bonanza for the competition that Forever 21 has and it’s another death knell for the malls they’re in that have already lost a Sears, Macy’s, Penney’s, and are struggling with footsteps diminishing every day.”
When asked whether Forever 21’s challenges were from declining mall traffic or a waning interest in fast fashion, Ms. Chang said she thought it was “a little of both.”
“You hear a lot of conversations about the rental market or the resale market and things like that, so I think there are definitely shifts there that are happening,” she said. “It’s still a massive market but we do want to make sure we get ahead of things and that we’re not just staying still while the consumers are changing.”
The information that emerge from the bankruptcy will be of interest as Forever 21 has maintained a tight-knit corporate culture. Mr. Chang and his wife rarely give interviews, though they nod to their faith by having “John 3:16,” a reference to the Bible verse, printed on every one of Forever 21’s bright yellow shopping bags. The elder Changs have long planned to pass the company on to their two daughters.
Ms. Chang said that she and her sister intended to keep working for the brand, but could not speak to whether they would still take it over someday.
“My parents built an amazing brand,” she said. “When you think of fast fashion, there’s really only a handful of names that come top of mind for most people, and to be in that top list is a pretty amazing feat.”