Forever 21 Prepares for Potential Bankruptcy

September 11, 2019, 8:08 PM UTC
Forever 21 Close To Declaring Bankruptcy According To Reports
SAN FRANCISCO, CALIFORNIA - AUGUST 29: A view of a window display at a Forever 21 store on August 29, 2019 in San Francisco, California. Forever 21 Inc. is preparing for bankruptcy filing as the fashion retailer is running out of cash. (Photo by Justin Sullivan/Getty Images)
Justin Sullivan—Getty Images

Forever 21 Inc. is preparing for a potential bankruptcy filing as the fashion retailer’s cash dwindles and turnaround options fade, according to people with knowledge of the plans.

The company has been in talks for additional financing and working with a team of advisers to help it restructure its debt, but negotiations with possible lenders have so far stalled, the people said. Focus has thus shifted toward securing a potential debtor-in-possession loan to take the company into Chapter 11, they said, even as some window remains to strike a last-minute deal that keeps it out of court.

Founded in 1984, Forever 21 operates more than 800 stores in the U.S., Europe, Asia, and Latin America.

Representatives for Forever 21 didn’t respond to a request for comment.

A bankruptcy filing would help the company shed unprofitable stores and recapitalize the business, said the people, who requested anonymity discussing private negotiations. Yet it could also be problematic for the country’s major mall owners, including Simon Property Group Inc. and Brookfield Property Partners LP. Forever 21 is one of the biggest mall tenants still standing after a wave of bankruptcies in the retail sector.

The Forever 21 effect on shopping malls

If the chain were to close a significant number of stores as part of the restructuring, its landlords could have trouble filling the vacancies. Indianapolis-based Simon counts Forever 21 as its sixth-largest tenant excluding department stores, with 99 outlets covering 1.5 million square feet, according to a filing as of March 31.

Co-founder Do Won Chang has been focused on maintaining a controlling stake in Forever 21, which has limited its fundraising options.

A faction of company officials, without the approval of Chang, had asked its biggest landlords to consider taking a stake in the retailer amid a disagreement within its leadership, Bloomberg previously reported.

Selling what’s commonly called fast fashion, Forever 21’s profits have faced increasing headwinds, from competitors such as Hennes & Mauritz AB to Target Corp.’s on-trend house brands and new online sellers.

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