Forever 21 Files for Bankruptcy and Adds to Fears Over Retail Changes

by | Oct 1, 2019 | Markets

This week the company announced it is filing for Chapter 11 bankruptcy protection.

For many companies, it’s tough to be in the retail business right now. This is undoubtedly the case for Forever 21, which announced it is filing for Chapter 11 bankruptcy this week. 

The company plans to close 178 stores across the U.S. and exit many of its locations across Asia and Europe. The company will maintain its locations across Latin America and Mexico. 

Forever 21 obtained $275 million in financing from JP Morgan and $75 million in capital from TPG Sixth Street Productions. These funds will allow the company to continue to operate throughout its bankruptcy. 

Details about the bankruptcy

Forever 21 is a privately-held company but the bankruptcy is significant because it demonstrates many of the fears people have about the retail sector in general. The company signifies consumers changing tastes, especially when it comes to mall-based retail stores.

Forever 21 took off during the early 2000s thanks to its inexpensive designer-knock off styles. But according to Linda Chang, the company’s vice president, the company’s mistake was expanding too quickly too soon. 

The company expanded to 47 countries to a short period of time and with that expansion came added complexity. Then technology began changing at a rapid pace and consumer preferences continue to shift online.

The news didn’t come as a huge surprise since there were speculations that the company was planning to file for bankruptcy. Forever 21 has been steadily losing customers and in-store traffic for a long time. Plus, the company had to deal with competitors like Zara and H&M.   

What’s next for Forever 21?

On the company’s Chapter 11 filing, it listed its total assets between $1 billion and $10 billion. One of the goals of the bankruptcy is to restructure the company and move forward as a smaller entity.  
Chang said that the company still plans to operate its website and it doesn’t plan to exit any major markets within the U.S. Chang says the company hopes to “…simplify things so we can get back to doing what we do best.”