Forever 21 filed for bankruptcy protection for the second time in six years on Sunday, blaming first fashion e-taylors Shein and Temu on its end mise.
The retailer’s operator is expected to shut down all operations in the US and has already begun liquidation sales in more than 350 locations, but is still open for bidding if buyers are willing to undertake stock and continue operating the store, court filings show.
Forever 21 has been seeking buyers for months and has contacted more than 200 potential bidders, of which 30 have signed non-disclosure agreements, but there are no viable transactions, court documents say. CNBC previously reported that the operator had been in consultation with the liquidator and would struggle to find a buyer for the business.
The company’s bankruptcy comes six years after it was born from its first application, just to face the Covid-19 pandemic, the highest inflation in decades, and new competition with Chinese startups like Shein and Temu.
In a court application, Stephen Coulombe, co-director-restructuring director of the operating company, said Forever 21 was “substantial and negatively affected” by the use of the De Minimis exemption, where Sheen and Temu “drooped” its business. The exemption is a loophole in trade laws that has historically allowed goods worth less than $800 to be shipped to the United States without import operations. President Donald Trump is about to end it.
“Certain non-US online retailers competing with debtors such as Temu and Shein have been using this exemption, allowing consumers to pass significant savings,” Coulombe wrote. “As a result, retailers such as companies that have to pay obligations and duties to purchase products from US stores and warehouses are undercut.”
“In spite of widespread demands from US companies and industry groups to create a level playing field for US retailers by shutting down exemptions, US law and policy has not resolved the issue,” he added.
The owner of Forever 21 operating company, SPARC Group, was recently reorganized to form a new company called the Catalyst brand, and in 2023 attempted to counter Shein’s competitive threat and partner with a startup. However, the transaction was not enough to stem the company’s losses or lead to changes in the De Minimis rules, Coulombe said.
“The ability of non-US retailers to sell their products to US consumers at significantly lower prices has had a major impact on the company’s ability to maintain its traditional core customer base,” Coulombe wrote.
The Forever 21 operator is heading for a complete US liquidation, but that doesn’t mean the brand will no longer exist. Its international stores and websites are expected to continue operating, and no brand names and other intellectual property owned by brand management company Authingic Brands Group are on sale, CNBC previously reported.
The company could still find new operators who are willing to run their operations in the US, now or in the future.
“We are attracting a lot of interest from powerful brand operators and digital experts who share our vision and are ready to take our brand to the next level,” said Jarrod Weber, global president of Lifestyle at Authentic Brands Group, in a statement. “The decision to restructure our licensee’s business will not affect Forever 21’s intellectual property or international business. It will accelerate the modernization of the brand’s distribution model and provide the opportunity to fast, compete and lead over the next decades.”
After the initial bankruptcy filing, Forever 21 enjoyed a period of rest when the business worked well. It was purchased by consortiums such as the Authentic Brands Group, Landlords Simon Property Group, and Brookfield Property Partners, and had new capital and trimmed fleets.
In fiscal 2021, it generated $2 billion in revenue and $165 million in EBITDA. However, as it was exacerbated by supply chain challenges and changing consumer preferences, and competition and inflation increased, Forever 21 performance began to splash. Over the past three fiscal years, the company has lost more than $400 million in fiscal year 2024 alone, including $150 million. The company predicts it will lose $180 million in EBITDA by 2025.
Last year, Jamie Salter, CEO of Authentic Brands Group, said at a meeting that buying a business was “probably the biggest mistake I’ve made.” A few months later, CNBC reported that the company was asking its landlords to cut rent by 50%. These efforts generated $50 million in savings, but it wasn’t enough to fight the company’s losses.
Today, the operator owes $1.58 billion on various loans, and more than $100 million to dozens of clothing manufacturers, primarily in China and South Korea.
Founded in 1984, Forever 21 has long been praised as a leader in the first fashion movement. At its peak, the company employed 43,000 people and generated more than $4 billion in annual revenue.
