By Vivien Bernardino
For many years, Forever 21 was a go-to store for young women looking to stay on trend without shelling out too much money.
Now, the American fast-fashion chain is in its second bankruptcy as it grapples to keep up with foreign rivals and inflationary pressures.
Forever no more?
F21 OpCo, LLC, the operator of Forever 21 stores in the United States, filed for Chapter 11 bankruptcy protection in a court in Wilmington, Delaware, the company announced in a statement dated March 16.
According to the latest court filing, F21 OpCo has $1.58 billion in debt after incurring more than $400 million in losses over the past three years.
The company also filed for bankruptcy in 2019, which resulted in the closure of hundreds of stores.
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What went wrong?
Brad Sell, chief financial officer at F21 OpCo, cited an overly competitive marketplace, economic challenges, and evolving consumer trends as key factors behind Forever 21’s financial struggles.
“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,” he said.
“As we move through the process, we will work diligently to minimise the impact on our employees, customers, vendors and other stakeholders.”
The de minimis tax exemption allows goods valued under $800 to enter the US free from import duties and tariffs. This loophole has long benefited online marketplaces like Shein, Temu, and AliExpress.
In 2023, Chinese fast-fashion application Shein struck a deal to acquire a third of SPARC Group – a joint venture between Forever 21 owner Authentic Brands and US mall operator Simon Property Group.
The deal saw Shein design, manufacture, and distribute Forever 21 clothing and accessories on its platform. This, however, failed to mitigate Forever 21’s losses.
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What comes next?
F21 OpCo said it will begin winding down its US business while looking for a buyer for some or all of its assets, which are worth between $100 million and $500 million.
It also filed customary motions seeking approval for “the consensual use of cash collateral to pay employee wages and benefits”.
Despite the liquidation process, the company said Forever 21’s stores and website in the US will remain operational. Stores outside the US are not affected by the company’s bankruptcy filing.
However, if Forever 21 fails to find a buyer, more than 350 stores in the US and Puerto Rico are expected to be shut down by May 1, US media reported.
Who founded Forever 21?
Forever 21, originally known as Fashion 21, was founded by South Korean immigrant couple Do Won Chang and Jin Sook Chang in Los Angeles, California, in 1984.
The company operated 800 stores worldwide and earned $4 billion in annual sales during its peak, Reuters reported, citing court documents.
To date, Forever 21 operates more than 540 stores worldwide and online, according to its website.
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