A Forever 21 store is pictured in London on September 30, 2019. Fashion retailer Forever 21 has filed for Chapter 11 bankruptcy protection in the United States.
Alberto Pezzari | NurPhoto | Getty Images
Veteran fast-fashion company Forever 21 is asking landlords to lower rent as it struggles to keep up with savvier competitors due to declining sales, CNBC reports.
The retailer, which has more than 380 stores across the U.S., has asked some landlords to reduce rent by up to 50%, a person familiar with the matter told CNBC.
The company is facing financial difficulties but has not yet hired advisers or considered filing for bankruptcy for a second time, the people said. The company is working to restructure many of its leases to cut costs, the people said.
Forever 21 is facing a host of problems that have long plagued its business: It operates in an increasingly saturated fast-fashion market and has struggled to manage inventory and understand and serve customers, one of the people said.
The retailer’s woes come after it filed for bankruptcy in 2019 and was subsequently bought by a consortium that included brand management company Authentic Brands Group and landlords Simon Property Group and Brookfield Property Partners.
At the time the company filed for bankruptcy, it had more than 800 locations worldwide.
Like many retailers, Forever 21’s huge store footprint weighed on its balance sheet when it first filed for bankruptcy: The company expanded too quickly during its growth period, which meant it couldn’t invest in its supply chain and adapt quickly enough to changing trends.
The company has closed hundreds of stores since filing for bankruptcy, but its problems have not been resolved.
Forever 21’s financial situation has also hurt the performance of its operator, Spark Group, a joint venture that includes Authentic, Simon and, last summer, Chinese fast-fashion giant Shein. In addition to operating Forever 21, Spark also runs a host of other formerly bankrupt retailers, including Aeropostale, Brooks Brothers and Lucky Brand.
Spark declined to comment when contacted by CNBC, and Simon did not respond to a request for comment.
Sparc’s eternal burden weighs on him
SPARC is scrutinizing its budget and grappling with its own financial difficulties, according to people familiar with the matter.
Many of Spark’s challenges stem from the difficulty of trying to integrate a slew of legacy brands and centralize teams, technology, marketing, e-commerce, sourcing and supply chains, according to one of the people. The company is also grappling with the problems of operating brands that have long operated primarily in shopping malls.
Charging high rents for underperforming stores relative to their size often puts pressure on retailers’ balance sheets and drains cash.
Forever 21 has consistently delayed payments to vendors over the past year, according to data from Creditsafe, a business intelligence platform that analyzes companies’ financial, legal and compliance risks. The data shows that Forever 21’s payment patterns to vendors have fluctuated, with some invoices being more than 70 days past due in the second half of 2023, according to Creditsafe.
While many businesses, even healthy ones, let invoices go unpaid for weeks or months, late payments can also be a sign of larger financial problems. The industry average over the past 12 months has hovered between 12 and 13 days, according to CreditSafe spokeswoman Ragini Bhalla.
Race to compete
Forever 21’s biggest competitors used to be the likes of H&M and Zara. Now, its biggest enemies are ultra-fast fashion retailers like Shein and Temu.
“It’s almost impossible to compete with that speed, so if you compare a brand that existed 20 years ago to these new on-demand fast fashion companies, it’s like comparing a cell phone from 2000 to the latest iPhone. The speed, the quality, everything is completely different,” one source said. “Someone makes a new outfit trend on TikTok, and Shein makes it right away. Regular brands can’t keep up.”
Shoppers walk past an advertisement on the first day of fast fashion e-commerce giant SHEIN’s brick-and-mortar pop-up inside Forever 21 at Ontario Mills Mall in Ontario, Ontario, on Oct. 19, 2023.
Allen J. Schaven | Los Angeles Times | Getty Images
Speaking at the ICR conference in January, Authentic Brands CEO Jamie Salter said the Forever 21 acquisition was “probably the biggest mistake” of his career, adding that Salter had also made a mistake earlier in failing to recognise the competitive threat posed by Shane & Tem.
He recalled a conversation he had with Simon CEO David Simon, who asked Salter why he wanted to partner with Shain.
“I said, ‘David, that’s the right decision. We can’t beat them. Their supply chain is too good. They know what’s going on. They understand this. We need to partner with them,'” Salter recalled. “So I was brave enough to say, ‘Let’s partner with them.'”
As part of the partnership, Shein will design, manufacture and sell a co-branded line of apparel and accessories for Forever 21, primarily through Shein’s website. Forever 21 has also hosted Shein pop-up stores and has begun accepting Shein returns, both of which have led to increased foot traffic at Forever 21 stores, one of the people said.
The two companies partnered in August last year, and under the terms of the agreement, Shein acquired about one-third of Sparc, while Sparc acquired a minority stake in Shein.
Given Forever 21’s lease concerns and the success of Shein’s pop-up stores, some industry observers have questioned whether the digital giant might acquire a Forever 21 store anytime soon, but one source said the company’s lack of experience with brick-and-mortar stores and a business model characterized by small batch production and inventory that constantly changes based on trends make an acquisition unlikely.
