Forever 21 store

Forever 21 Inc. filed for Chapter 11 bankruptcy protection late Sunday, joining the ranks of traditional retailers struggling mightily to adapt in an era of online shopping.

“This was an important and necessary step to secure the future of our company, which will enable us to reorganize our business and reposition Forever 21,” Linda Chang, executive vice president of Forever 21, said in a statement.

Bankruptcy is a common strategy among retailers to restructure debt and get out of expensive leases. In a press release, Forever 21 said it would the bankruptcy as an opportunity to “right size its store base and return to basics.” In addition, under the terms of the Chapter 11 restructuring strategy, many of Forever 21’s stores in the U.S., Mexico and South America will remain open and continue to operate. But the retailer will close most of its international locations in Asia and Europe, along with up to 178 doors in the U.S.

“The decisions as to which domestic stores will be closing are ongoing, pending the outcome of continued conversations with landlords,” read a letter to customers posted on the retailer’s web site. “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.”

Financial advisory firm Lazard is serving as the company’s investment banker to help with the restructuring process. Forever 21 has also received $275 million from JPMorgan Chase and $75 million from TPG Sixth Street Partners as part of its refinancing efforts.

“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,” Chang said. “With support from our key landlord and vendor constituents, we are confident we will emerge as a stronger, more competitive enterprise that is better positioned to prosper for years to come and we remain committed to delivering the fast fashion trends that our customers have come to expect from Forever 21.”

The retailer could not be reached for further comment.

Forever 21 was founded in Los Angeles in 1984 by South Korean immigrant Do Won Chang and his wife. The specialty retailer began by selling women’s apparel, but later expanded into men’s wear, children’s and accessories. The fast-fashion formula — selling tops for as cheap as $5 or $10 — helped the company grow to 815 stores in 57 countries.

But signs of weakness have been brewing for some time. The retailer liquidated all of its China stores in May, in addition to closing down the Chinese web site and stores on Chinese online marketplaces Tmall and JD.com

The company entered the Chinese market in 2008, only to leave shortly after. It reentered in 2011, opening an online store and several brick-and-mortar locations. Still, despite the growing Chinese economy, Forever 21 failed to spark interest among Chinese shoppers, especially younger ones, many of whom were opting for luxury fashion.

Stateside, the retailer has also been under pressure in the era of online shopping. Forever 21’s large retail fleet is often found in malls around America, many with declining foot traffic. According to the company’s web site, the average store size is 38,000 square feet. Under the terms of bankruptcy protection, the retailer may be able to renegotiate store leases or downsize store sizes.

But it’s not just an evolving retail landscape that has been challenging for the retailer. Shoppers are increasingly favoring sustainable fashions, leaving many to wonder if the fast fashion formula is over.

The company has also been involved in a number of controversies and pending litigation in recent years as accusations of labor violations, copyright infringement, cultural insensitivity and even peddling its religious agenda on shoppers, have surfaced. 

Perhaps the most significant suit is a still-pending class-action settlement in California federal court. The case involves a 2017 data breach that affected customers’ payment information. In December 2017, Forever 21 revealed that credit card information for a number of shoppers may have been compromised. In August, a judge rejected a proposed settlement.

Meanwhile, Forever 21 received backlash from consumers last Christmas after photos of a white model wearing Wakanda Forever Fair Isle Sweater appeared on the company’s web site. The retailer later apologized and pulled the photo. Forever 21 has also been busy squaring off with Adidas in an Oregon federal court. The German sportswear brand claimed Forever 21 infringed on its trademark three stripes in some of its clothing. 

And if that’s not enough, Ariana Grande is suing the retailer for copyright and trademark infringement. The singer alleges that a Forever 21 ad campaign used images and video stills from her “Thank U, Next” album. Now she’s seeking $10 million in damages.

A bankruptcy could leave Forever 21’s courthouse opponents in limbo.

That’s because typically, the bankruptcy code freezes any lawsuits seeking some kind of payment from a company in bankruptcy. Parties may be able to ask the bankruptcy court to lift the stay in their case, but there are restrictions that would make this a rare feat. And a bankruptcy court would only grant such a request if all parties, including the bankrupt company’s lenders and creditors, agree to it.

The bankruptcy also means mall owners that house Forever 21 stores — like Simon Property Group and Brookfield Property Partners — will need to find new tenants. Simon and Brookfield would not respond to requests for comment.

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