Teen clothing powerhouse Forever 21 just filed for bankruptcy, affecting the fates of hundreds of its stores both locally and abroad.
For starters, between 300 to 350 stores will be closed, possibly as many as 178 of them in the US. They also plan on exiting “most of its international locations in Asia and Europe.” Currently, the company has 549 stores in the US and 251 in other countries. However, the chain will continue operations in Mexico and Latin America.
Watch to find out more of this news below.
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The company sent a letter to customers saying that they are still deciding which US stores to close “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 US,” the company said.
One of the advantages retailers have in filing for bankruptcy is the ability to opt-out of leases and close stores at a much lower cost.
In a news release, Linda Chang, executive vice president for Forever 21, explained that the Chapter 11 bankruptcy filing is “an important and necessary step to secure the future of our Company, which will enable us to reorganize our business and reposition Forever 21.”
In order to ensure that the company can operate “in a business as usual manner” while the restructuring is ongoing, Forever 21 obtained financing worth $275 million from JPMorgan Chase (JPM) in addition to $75 million in new capital from TPG Sixth Street Partners. The company’s Canadian subsidiary has also received protection from creditors.
Online shopping has hit malls and physical store locations hard as foot traffic has been cut significantly. Forever 21 is only the latest casualty among traditional retailers who already struggle with high debt and high rent.
Even healthy retailers have not been spared. “Retailers relying on debt to finance their growth have always been particularly susceptible to slowdowns,” said Greg Portell, lead partner in retail consulting firm A.T. Kearney.
To date, retailers have announced more than 8,200 store closings in the US. This already exceeds last year’s 5,589 closures, says Coresight Research. Both Payless and Gymboree for bankruptcy a second time, causing almost 3,000 store closures between them.
Coresight sees more retail shutdowns forthcoming and may reach as high as 12,000 by the end of 2019.
South Korean immigrants Do Won Chang and his wife, Jin Sook founded Forever 21 in 1984 in Los Angeles.
From a small store, it quickly expanded to suburban malls, gaining the attention of young girls and women with offerings of inexpensive basics. The company was a master of the fast-fashion model, coming out with frequent updates of clothes designs compared to department stores or single brands.
One store manager said in 2001, “We get new merchandise in every day. With most mall stores, it’s usually one or two days a week. We always have the newest styles.”
“The combination of fast fashion and accelerating supply chain speeds have exacerbated that risk by increasing the chances that a retailer reads the trends wrong and misses multiple trend cycles,” said Portell.
And unfortunately for Forever 21, that risk has finally caught up with them.
Replaced!