Forever 21 files for Chapter 11 bankruptcy

January 2020 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

January 2020 Issue

Forever 21 has become the latest high-profile retailer to file for Chapter 11 bankruptcy protection. The California-based company filed for bankruptcy protection in the US Bankruptcy Court for the District of Delaware, listing both assets and liabilities in the range of $1bn to $10bn.

The company will now begin a process of restructuring which will likely see several of its locations close. In September, Forever 21 announced its intention to exit Japan and close all 14 of its store locations in the country by the end of October. The company now expects to focus on the profitable core part of its operations and shut some, if not most, of its international locations, though its operations in Mexico and Latin America will likely remain open. The company does not expect to close locations in major US markets, though there will be many store closures elsewhere.

To facilitate its restructuring, the company has obtained $275m in financing from its existing lenders, with JPMorgan Chase Bank, N.A. acting as agent, as well as $75m in new capital from TPG Sixth Street Partners, and certain of its affiliated funds.

Forever 21 saw its revenue fall to $3.3bn in 2018, down from $4.4bn in 2016. The restructured company expects to bring in $2.5bn in annual sales. The company employs about 32,800 people, down from 43,000 in 2016.

“We have requested approval to close up to 178 stores across the US. The decisions as to which domestic stores will be closing are ongoing, pending the outcome of continued conversations with landlords,” the company said in a statement. The company also said its Canadian subsidiary filed for bankruptcy and it plans to wind down the business, closing 44 stores in the country.

The company appointed RSM Restructuring Advisory as administrators for its UK business on 30 September following the bankruptcy filing in the US. Forever 21’s remaining three locations in the UK, in London, Liverpool and Birmingham, will close in early 2020 as the company’s real estate presence will be reduced to between 450 and 500, down from around 800 globally. Forever 21’s UK division, which was founded in 2010, made a £61m loss in its last financial year, on sales of £26m.

“This was an important and necessary step to secure the future of our Company, which will enable us to reorganise our business and reposition Forever 21,” said Linda Chang, executive vice president of Forever 21. “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 revitalise our brand and fuel our growth, allowing us to meet our ongoing obligations to customers, vendors and employees. 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,” she added.

2019 was an extremely challenging year for the retail industry. In the US, to the beginning of October, publicly traded US retailers announced the closure of 8558 stores and the opening of 3446 new locations, according to global research firm Coresight Research. That compares with 5844 closures and 3258 openings in all of 2018. Prior to Forever 21’s filing, Barneys and Diesel USA were among the most prominent firms to have applied for Chapter 11 bankruptcy protection in 2019. Other firms, including Charlotte Russe and Payless ShoeSource, went out of business entirely.

Forever 21 was founded in 1984 and rose to prominence in the 1990s, however the emergence of ‘fast fashion’ rivals including Zara and H&M, as well as a consumer shift online toward direct to consumer competitors, along with increasing consumer focus on ethical products, has greatly impacted the company.

Richard Summerfield