Fast fashion retailer Forever 21, on the brink of filing for bankruptcy protection for the second time, is expected to shutter all of its stores as a result.
Sarah Foss, head of legal at Debtwire, projects that the retailer could file for Chapter 11 within the next few weeks, if not sooner, and will liquidate its assets, including all 350 of its stores, as part of that process.
“A Chapter 11 liquidation appears to be the most likely scenario for the retail chain as a going concern buyer for its U.S. assets and leases has not yet emerged,” said Foss, who explained that a liquidation would have a significant impact, not only on the company’s workforce, but also on shopping malls nationwide which have been hamstrung in recent years amid a shift to online shopping.
Earlier this week, a source familiar with the matter told Bloomberg that the company is already preparing to close at least 200 locations as part of the bankruptcy process.
PRESSURE FROM SHEIN, TEMU ACCELERATE RETAIL CLOSURES
The clothing chain, according to Foss, has faced issues since its first trip through bankruptcy in September 2019, during which it closed over 100 of its 534 stores and sold the rest to a consortium of buyers.
Forever 21 owners Authentic Brands Group and Simon Property Group, created a joint venture, Sparc Group, to keep the company alive in 2019. In January, Sparc Group teamed up with JCPenney to form a new organization, Catalyst Brands.
Debtwire data shows that the retail sector has continued to face challenges, with 20 Chapter 11 filings since the beginning of 2024.
The company has also seen a particular rise in “Chapter 22 filings,” which refers to companies that have entered bankruptcy for a second time. About 25 companies have done so since 2016, according to Debtwire data.
Specifically, Foss is blaming the downfall of Forver21 on competition from low-cost fashion retailers like Shein and Temu, coupled with the “sizable stores that are expensive to operate.”
US RETAIL CLOSURES HIT HIGHEST LEVEL SINCE PANDEMIC
Coresight Research, a firm specializing in retail and technology, in January estimated that closures will rise to 15,000 in 2025, in large part because of “specifically the competitive pressures” from fast fashion platforms Shein and Temu.
The rival companies have risen in prominence in recent years as inflationary consumers leveraged their cheap prices. Both companies offer a range of products and clothing at low prices, though they have faced fierce criticism over labor practices, environmental concerns, and business ethics such as intellectual property infringement.
However, Foss said that even if Forever 21 retail locations were to shut down, it wouldn’t mark the end of the company.
“The brand and intellectual property are still owned by Authentic Brands Group and may not be part of a bankruptcy liquidation. Indeed, the intellectual property can have significant value even as distressed sales are occurring,” said Foss.
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