In a significant development for the retail industry, Forever 21 has announced plans to close all its U.S. stores following a tumultuous period marked by financial struggles and competitive pressures. The fashion retailer, known for its trendy and affordable clothing, has been seeking a buyer for several months, engaging with over 200 potential bidders and securing confidentiality agreements with 30 of them. However, efforts to stabilize the business have been unsuccessful, resulting in the company's filing for bankruptcy protection for the second time in six years.
The retailer attributes its downfall to the rise of fast-fashion e-tailers like Shein and Temu, which have been able to offer products at significantly lower prices. Forever 21 expressed that its operations were "materially and negatively impacted" by these competitors' use of the de minimis exemption, a legal provision that allows goods valued under $800 to be imported into the U.S. without incurring import duties. This exemption has reportedly allowed non-U.S. retailers to undercut American companies by avoiding tariffs and duties, affecting Forever 21's ability to maintain its customer base.
Stephen Coulombe, the co-chief restructuring officer of Forever 21's operating company, highlighted the challenges faced due to this exemption.
"The ability for non-U.S. retailers to sell their products at drastically lower prices to U.S. consumers has significantly impacted the Company's ability to retain its traditional core customer base," he stated.
"Consequently, retailers that must pay duties and tariffs to purchase product for their stores and warehouses in the United States, such as the Company, have been undercut."
As a result of these financial difficulties, Forever 21's operating company is expected to cease all operations in the U.S., bringing an end to its physical retail presence in the country. The company has already initiated liquidation sales across its more than 350 locations. At its peak, Forever 21 boasted over $4 billion in annual sales and employed 43,000 individuals. However, the company now finds itself burdened with $1.58 billion in various loans and over $100 million owed to clothing manufacturers, primarily in China and Korea.
Despite these setbacks, Forever 21's international stores and website are anticipated to continue operations. The brand name and other intellectual property owned by Authentic Brands Group remain off the market, indicating a possible future for the brand beyond its current crisis. Jarrod Weber, global president of lifestyle at Authentic Brands Group, remains optimistic about the potential interest from prospective buyers.
"We are receiving lots of interest from strong brand operators and digital experts who share our vision and are ready to take the brand to the next level," he remarked.
Forever 21's operating company projects a loss of $180 million in EBITDA through 2025. These projections underscore the challenges faced by the company as it navigates an increasingly competitive retail landscape heavily influenced by digital transformation and changing consumer preferences.