Forever 21 declares bankruptcy and will close up to 178 stores in the United States

Forever 21, the teen clothing store that caused the rise and fall of malls in the United States, declared bankruptcy.

The channel announced plans to revise its global business and close between 300 and 350 stores, including 178 in the United States. It also plans to leave “most of its international sites in Asia and Europe”. The company, which currently has 549 stores in the United States and 251 in other countries, will continue operations in Mexico and Latin America.
In a letter to customers on Sunday night, the company said that decisions regarding the closure of US stores would be maintained, “pending the results of ongoing discussions with owners.”

“We expect, however, that a significant number of these stores will remain open and operate as usual, and we are not planning to leave a major US market,” the company said.
The ability to leave leases and close down stores cheaply is one of the key benefits of the bankruptcy process for retailers.

Linda Chang, executive vice president of the company, said in a press release that the declaration of bankruptcy under Chapter 11 was “an important step and necessary to secure the future of our company, which will allow us to reorganize our activities and to reposition ourselves forever “. ”

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Forever 21 announced that it has secured $ 275 million in financing from JPMorgan Chase (JPM), as well as $ 75 million in new capital from TPG Sixth Street Partners, which would allow it to operate “as usual” during the restructuring. . Its Canadian subsidiary has also benefited from creditor protection.

The retailer is the latest to have problems with the increase in online shopping that has reduced pedestrian traffic to shopping malls and physical stores. High debt levels and rental costs also weighed on traditional retailers.

In recent years, even healthy retailers have closed their stores and those who fought have declared bankruptcy.

“Retailers who use debt to finance their growth have always been particularly sensitive to the downturn,” said Greg Portell, a leading consumer and retail partner at A. T. Kearney.
So far this year, retailers in the US have announced more than 8,200 store closures, which was already more than 5,589 last year, according to Coresight Research. Payless and Gymboree went bankrupt for the second time, closing almost 3,000 stores between them.
Coresight predicts that more retail outlets are expected to close and reach 12,000 by the end of 2019.

Forever 21 was founded in 1984 in a small Los Angeles store by South Korean immigrants Do Won Chang and his wife, Jin Sook. The chain quickly spread to suburban shopping centers and served girls and young women with a combination of low-cost commodities. The company has perfected the fast fashion model, attracting customers with its frequently updated clothing mix, which was offered in department stores or unique brands.

“We get new products every day, and in most mall stores it’s usually one or two days a week,” said a store manager in 2001. “We still have the latest styles. “

The chain has built huge stores, such as its flagship four-story, 90,000-square-foot store with 151 testers, in the heart of Times Square in New York City. And while many retailers have begun to reduce their store network in recent years, Forever 21 has continued to add stores in 2016.

Traditional retailers specializing in the sale of clothing to teens and young adults have had problems in recent years, as fashion cycles are shrinking and younger shoppers are moving from shopping malls to online shopping.

“The combination of fast fashion and speeding up the supply chain has exacerbated this risk by increasing the chances that a retailer will read trends incorrectly and lose several trend cycles,” said Portell.

Wet Seal, American Apparel and Delia went bankrupt and closed all their stores in the last five years. Aeropostale declared bankruptcy in 2016, but kept some stores open. Charlotte Russe has also filed for bankruptcy this year.
Many retailers had problems after being bought by