Forever 21 has once again sought bankruptcy protection, marking its second filing in just six years and attributing its financial troubles to competition from fast-fashion e-tailers Shein and Temu.
The company plans to shut down all its U.S. operations and has already initiated liquidation sales at its more than 350 stores, though it remains open to offers for its inventory and the continuation of store operations, according to recent court filings.
Over the past few months, Forever 21 has approached over 200 potential buyers, secured confidentiality agreements with 30, yet has failed to secure a sale, as noted in legal documents. It was earlier reported that the company was negotiating with liquidators and facing challenges in attracting a buyer.
This bankruptcy comes just six years after the company recovered from its previous financial woes, only to encounter challenges such as the Covid-19 pandemic, unprecedented inflation, and fresh competition from Chinese companies like Shein and Temu.
In the legal documents, Stephen Coulombe, co-chief restructuring officer, claimed that Forever 21 faced significant setbacks from Shein and Temu exploiting the de minimis exemption, which allows low-value imports into the U.S. duty-free, a situation President Donald Trump has sought to rectify.
Coulombe highlighted that competitors like Temu and Shein have used this exemption to offer considerable savings to consumers, adversely affecting companies like Forever 21 that are subject to import duties.
Despite numerous appeals from U.S. businesses and trade groups for equitable treatment by eliminating this exemption, U.S. policies have yet to effectively address the issue, he further stated.
The Sparc Group, owner of Forever 21’s operations and recently rebranded as Catalyst Brands, attempted to mitigate Shein’s competitive influence in 2023 through a partnership, but this move failed to significantly alleviate the company’s financial losses or influence changes in trade policies, according to Coulombe.
The competitive pricing of international retailers has substantially affected Forever 21’s ability to maintain its customer base, Coulombe added.
While the U.S. operations of Forever 21 are heading towards liquidation, this does not signify the end of the brand.
The international operations and online presence of Forever 21 are set to continue, and the brand’s intellectual properties, held by Authentic Brands Group, are not on the auction block, as reported by CNBC.
Authentic Brands Group sees potential for finding new U.S. operators to manage the brand, possibly revitalizing its presence in the market.
Jarrod Weber, global president of lifestyle at Authentic Brands Group, stated that the restructuring of the U.S. licensee will not affect Forever 21’s intellectual property or its operations abroad, viewing it as a chance to enhance the brand’s distribution strategy for future competitiveness in the fast-fashion industry.
Following its initial bankruptcy resolution, Forever 21 experienced a successful phase, having been acquired by a consortium including Authentic Brands Group, Simon Property Group, and Brookfield Property Partners, which provided new capital and streamlined operations.
In fiscal 2021, the company reported $2 billion in revenue and $165 million in EBITDA. However, as competition stiffened and economic conditions like inflation worsened, compounded by supply chain issues and evolving consumer preferences, the company’s performance began to sputter.
Over the last three fiscal years, Forever 21 has incurred losses exceeding $400 million, including $150 million in fiscal 2024 alone, with projected EBITDA losses of $180 million through 2025.
Founded in 1984, Forever 21 was a pioneering force in the fast-fashion industry, employing up to 43,000 people and generating over $4 billion in annual sales at its height.
