F21 OpCo (Forever 21’s US operating company) has declared bankruptcy under Chapter 11 for the second consecutive time within six years. The reason given was a decline in mall traffic as well as increased competition by online retailers.
F21 OpCo is the company that operates Forever 21 in the US and has the license to operate the store. However, the international locations are still operated by independent franchisees.
This filing in Delaware’s US Bankruptcy Court on Sunday signals that the US operations of the company are likely to be liquidated, since the company is unable find a buyer for the approximately 350 stores in its domestic market.
The company has announced it will be conducting liquidation sales in its stores, while engaging in court-supervised marketing and sale processes for all or some of its assets.
What caused Forever 21 to fail in the US
Brad Sell, Chief Financial Officer of Forever 21, cited the fierce competition that foreign fast fashion companies have faced. These firms are taking advantage of de minimis exemptions, which allow duty-free clothing imports at lower prices. This has allowed them to undercut Forever 21 on pricing and margins.
The rising cost of goods and services, as well as the wider economic issues that affect consumer demand were also mentioned by him.
Forever 21 filed Chapter 11 bankruptcy in 2019. Sparc (a joint venture of Authentic Brands Group(ABG), Simon Property Group and Brookfield Asset Management) acquired the company out of bankruptcy.
The business has been under pressure despite the efforts made to revitalize the brand. This is due to the shifting shopping patterns of consumers away from the malls to online fashion fast.
According to Forever 21’s bankruptcy filing, its estimated assets range between $100 and $500 millions, and its liabilities between $1 billion and 10 billion.
Also, the company reported that it had between 10,000 and 25,000 creditors.
The future of Forever21
Forever 21 could reconsider its decision to wind down completely in the event of a successful asset sale and instead opt for a continuing business transaction.
The company is stating that for the time being, its US shops and website will continue to be operational during liquidation and sales.
This filing is just a few weeks after Forever 21 parent company Sparc Group merged with JCPenney, creating Catalyst Brands.
Catalyst Brands indicated at the time of merger that they were “exploring” strategic options for Forever 21 but there was no apparent turnaround plan.
The Forever 21 Brand itself may survive, even though F21 OpCo will be liquidated.
Authentic Brands may license its name to retailers, despite the fact that it retains the ownership of trademarks and intellectual properties.
ABG’s CEO Jamie Salter expressed his regret at the time of acquiring Forever 21 and called it “the greatest mistake I ever made”.
Forever 21 is a fast fashion retailer that was founded in Los Angeles by South Koreans in 1984. It catered to the needs of young people looking for trendy, affordable clothes.
In 2016, it operated 800 shops worldwide, 500 of which were in the US.
The company’s market share has been eroded by the increasing online competition and changing retail dynamics. This is its second bankruptcy within a decade.
What went wrong with Forever 21? This post may change as new information unfolds
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