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Forever 21 seeks rent concessions, facing financial difficulties
Although the company is facing financial difficulties, it has not yet hired advisors and is not considering a second filing for bankruptcy protection, the people said. The company is working to restructure its various leases so it can cut costs, they said.
Forever 21 faces a number of problems that have long tormented his business. It operates in the increasingly saturated fast fashion market, the people said. They also added that the retailer has difficulty managing inventory and understanding and responding to its consumers.
Retailer’s Struggles Come After This filed for bankruptcy protection in 2019 and it was later acquired by a consortium including brand management company Authentic Brands Group and owners Simon Property Group and Brookfield Property Partners.
When the company sought bankruptcy protection, it had more than 800 locations worldwide.
Similar to many retailers, Forever 21’s huge store presence weighed on its balance sheet when it filed for bankruptcy protection. The retailer expanded too quickly during its growth phase, leaving it unable to invest in its supply chain and respond quickly to changing trends.
Closing hundreds of stores after filing for bankruptcy protection didn’t solve your problems.
Forever 21’s financial position has also hurt the performance of its operator Sparc Group – the joint venture that includes Authentic, Simon and, since last summer, China-linked fast fashion giant Shein. Sparc manages the operations of Forever 21, as well as several other previously bankrupt retailers, including Aeropostale, Brooks Brothers and Lucky Brand.
Sparc declined to comment to CNBC. Simon did not respond to a request for comment.
Sparc has been scrutinizing its budgets and facing its own financial difficulties, people familiar with the matter said.
Many of Sparc’s challenges come from the difficulty of merging numerous legacy brands and trying to centralize its teams, technology, marketing, e-commerce, sourcing and supply chains, one of the people said. It also faces the issue of managing brands that have been operating for a long time mainly in shopping malls.
Expensive rents for stores that perform poorly relative to their size can often weigh on retailers’ balance sheets and drain money.
Forever 21 has consistently paid its suppliers late over the past year, according to data from Creditsafe, a business intelligence platform that analyzes companies’ financial, legal and compliance risks. Data shows that Forever 21’s payment patterns to suppliers have fluctuated, with some bills being more than 70 days due at the end of 2023, according to Creditsafe.
Many businesses, including many healthy ones, leave bills unpaid for weeks or months, but late payments can also signal larger financial problems. The industry average has fluctuated between 12 and 13 days late over the past 12 months, said Creditsafe spokesperson Ragini Bhalla.
In the past, Forever 21’s main rivals have included H&M and Zara. These days, their biggest enemies are ultra-fast fashion retailers like Shein and Temu.
“It’s almost impossible to compete with speed. So if you juxtapose any brand that was around 20 years ago with these new manufacturing-on-demand fast-fashion companies… it’s like comparing a cell phone from 2000 to the newest iPhone. The speed, the quality, everything is just different,” said one of the people. “As soon as someone goes viral with a new outfit on TikTok, Shein is immediately on it and no regular brand can keep up.”
Shoppers walk past advertisements on opening day for fast fashion e-commerce giant Shein, which hosted a physical pop-up inside Forever 21 at Ontario Mills Mall in Ontario on October 19, 2023.
Allen J. Schaben | Los Angeles Times | Getty Images
At the ICR conference in January, Authentic Brands CEO Jamie Salter said acquiring Forever 21 was “probably the biggest mistake” of his career, adding that he also erred in failing to recognize the competitive threat posed by Shein and Temu previously.
He recalled a conversation he had with Simon CEO David Simon, who asked Salter why he wanted to partner with Shein.
“I said, ‘David, it’s the right decision, we can’t beat them. Their supply chain is really good. They know what’s going on. They figured it out. We need to partner with them,'” Salter said. “So I was the brave one who said, ‘Let’s partner with these guys.’”
As part of the partnership between the two retailers, Shein will design, manufacture and distribute a line of Forever 21 branded clothing and accessories that will be sold primarily on the Shein website. Forever 21 also hosted Shein pop-up stores and began accepting Shein returns, which drove positive traffic to Forever 21 stores, one of the people said.
Both originally linked last August and under the terms of the deal, Shein acquired about a third of Sparc, while Sparc acquired a minority stake in Shein.
Given the concerns Forever 21 is having about its rents and the success of Shein’s pop-up stores, some industry observers have questioned whether the digital giant could soon take control of Forever 21 stores. However, one of the people said this is unlikely because the retailer has no experience in physical retail and its business model involves small-batch production and an inventory that constantly changes based on trends.