Forever 21 U.S. Operator Readies Bankruptcy Filing, Preps New Operating Strategy
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Forever 21 is preparing for its second bankruptcy filing — which could happen as early as this weekend, according to sources — as it shifts to more of an online model in the U.S. and searches for a new operator to keep a small percentage of its top-performing 350 stores in operation. The bankruptcy would be for the company’s U.S. operating company, meaning that its intellectual property is not impacted. The fast-fashion teen retailer, which was founded in Los Angeles in 1984 by South Korean immigrants Do Won Chang and his wife Jin Sook Chang, has been in the media spotlight for the past few weeks following Worker Adjustment and Retraining Notification, or WARN, notices that have been filed in California and Pennsylvania indicating that nearly 700 people in those states will be laid off. More than 350 work at the company’s headquarters in Los Angeles, which is also slated for closure, and the rest at the company’s stores. Related Articles Retail Target Strikes Strategic Partnership With Champion, Offering Activewear and Sporting Goods Retail Simon Teams With Shopify and Leap to Bring Brands to Its Centers Forever 21 was purchased out of bankruptcy for around $300 million in February 2020 by Authentic Brands Group, Simon Property Group and Brookfield Property Partners, which bought the intellectual property and operating businesses. Today Authentic owns the intellectual property and the operating company is a separate entity, Forever 21 Opco, which would be the business filing bankruptcy. At the time of the sale, the new owners had hoped to keep all 448 U.S. stores open along with the couple hundred it operated internationally. You May Also Like In early January, Authentic, Simon, Brookfield and Shein came together to form Catalyst Brands, a new $9 billion organization consisting of six retail chains and more than 1,800 stores under the brands Aeropostale, Brooks Brothers, Eddie Bauer, Lucky Brand, Nautica and JCPenney. Absent from that list was Forever 21 and the companies said at that time that they were exploring strategic options for the business. However, the Forever 21 operating company was not part of that merger. Jamie Salter, chief executive officer of Authentic, has said publicly at an ICR conference that acquiring Forever 21 was “probably the biggest mistake I made.” But the dealmaker and his partners and internal team have come up with a plan to keep the business operating, albeit in a different form. Sources said its owners are in advanced negotiations to transition the Forever 21 U.S. license from Catalyst Brands to new direct-to-retail partners who will operate the business primarily online. But its owners are not giving up on the stores completely and are looking for an operating partner to keep some 100 of its highest-traffic units in operation, sources said. At the same time, the mix in those stores will shift. The plan, according to sources, would be to create monthly curated drops designed and manufactured following detailed analysis of consumer shopping preferences. This is a model that Shein uses quite successfully with its trend-oriented merchandise offering. At the same time, Forever 21 will also focus more heavily on wholesale and is seeking a licensee to create a factory-to-retail model that can design and produce the bulk of the collection within 90 days, with some product launching in as little as 60 days. This is expected to increase margins from the 40 to 50 percent seen in a typical wholesale model to between 60 percent and 70 percent. Authentic has tested this factory-to-retail model in international markets with success, sources noted. From the wholesale perspective, JCPenney will continue to carry the collection as its fast-fashion anchor in more than 650 stores, and Amazon, which already sells the product, is preparing to capitalize on the new, faster production cycle, which could significantly expand its business with the brand. Shein also carries Forever 21 on its marketplace, a deal Salter inked in the fall of 2023. The Shein platform boasts more than 150 million users. Authentic is close to securing a design and supply chain operator that can produce merchandise within this time frame. At its peak, Forever 21 had sales of $4.1 billion, employed 43,000 people and operated in 57 countries. Early on, its primary competitors were H&M and Zara but today, the Chinese behemoths Shein and Temu have become the poster children for the fast-fashion model. In addition, Forever 21’s stores are often too large and the company had expanded too quickly. A bankruptcy filing in the U.S. would not impact the Forever 21 stores operated under license internationally.
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