Low-price fashion chain Forever 21, a one-time hot destination for teen shoppers that fell victim of its own rapid expansion and changing consumer tastes, has filed for Chapter 11 bankruptcy protection.
The privately held company based in Los Angeles said Sunday it will close up to 178 stores. The company once had more than 800 stores in 57 countries.
The retailer has four Indianapolis-area mall stores: at Circle Centre and Castleton Square in Indianapolis, Clay Terrace in Carmel and the Shops at Perry Crossing in Plainfield.
The bankruptcy filing could help Forever 21 get rid of unprofitable stores and raise fresh funds. This could be problematic for major U.S. mall owners, including Indianapolis-based Simon Property Group Inc. and Brookfield Property Partners LP, because Forever 21 is one of the biggest mall tenants still standing after a wave of bankruptcies. The busts emptied more than 12,000 stores in the past two years, and those vacancies may be hard to fill.
Simon counts Forever 21 as its sixth-largest tenant, excluding department stores, with 99 outlets covering 1.5 million square feet, as of March 31, according to a filing.
“Forever 21’s restructuring will focus on maximizing the value of our U.S. footprint and shuttering certain international locations,” the company said in a statement. “As such, and as part of our filing, we have requested approval to close up to 178 stores across the U.S. The decisions as to which domestic stores will be closing are ongoing, pending the outcome of continued conversations with landlords. We do, however, expect a significant number of these stores will remain open and operate as usual, and we do not expect to exit any major markets in the U.S.”
Court papers filed in the Bankruptcy Court for the District of Delaware show Forever 21 has estimated liabilities on a consolidated basis of between $1 billion and $10 billion. The Chapter 11 filing allows the company to keep operating while it works out a plan to pay its creditors and turn around the business.
Forever 21 has obtained $275 million in financing from lenders with JPMorgan, Chase & Co. as agent, as well as $75 million in new capital from TPG Sixth Street Partners and its affiliated funds.
“The financing provided by JPMorgan and TPG Sixth Street Partners will arm Forever 21 with the capital necessary to effect critical changes in the U.S. and abroad to revitalize our brand and fuel our growth, allowing us to meet our ongoing obligations to customers, vendors and employees,” Linda Chang, executive vice president of Forever 21, said in a statement.
Forever 21 was aiming to file for bankruptcy with an agreement in place to give its landlords a stake in the company while allowing co-founder Do Won Chang to retain a share, Bloomberg earlier reported. Negotiations with mall operators Simon and Brookfield have included questions over ownership and leadership of the company during and after its restructuring, as well as which stores to close.
The talks among Forever 21, lenders and its landlords are evolving rapidly, and the outcome may still change, sources told Bloomberg.
Forever 21 joins Barneys New York and Diesel USA in a growing list of retailers seeking bankruptcy protection as they battle online competitors. Others like Payless ShoeSource and Charlotte Russe have shut down completely.
The numbers bear out the crisis facing traditional retailers. So far this year, publicly traded U.S. retailers have announced they will close 8,558 stores and open 3,446, according to the global research firm Coresight Research. That compares with 5,844 closures and 3,258 openings in all of 2018.
Coresight estimates the store closures could number 12,000 by the end of 2019.
Forever 21 was founded in 1984 and, along with other so-called fast fashion chains like H&M and Zara, rode a wave of popularity among young customers that took off in the mid-1990s.
Their popularity grew during the Great Recession, when shoppers sought fashion bargains.
But over the last year or so, fast fashion has fallen out of style. Young customers are losing interest in throw-away clothes and are more interested in buying eco-friendly products. They’re also gravitating toward rental and online second-hand sites like Thredup, where they see clothes worn again instead of ending up in a landfill.
These trends are happening while discounters like Target have spruced up their fashion assortments, stealing away customers.
Forever 21 has also been more vulnerable than some other chains because of its large footprints in major malls, which are attracting fewer shoppers.