Forever 21 Files for Bankruptcy Again Due to Rising Inflation and Competition
Retailer Forever 21 has filed for bankruptcy for a second time after being hit by rising inflation and intense competition in the fast-fashion sector. The fast-fashion retailer will start conducting store-closing sales at all of its U.S. locations and it will honor customer gift cards during the first 30 days of its bankruptcy. The retail chain has nine stores in the Dallas-Fort Worth area.
Forever 21 blamed the situation on higher costs and companies taking advantage of duty-free treatment of low-cost packages from China to undermine its pricing power. The company’s finance chief, Brad Sell, stated that they have been unable to find a sustainable path forward due to competition from foreign fast-fashion companies, which have been able to take advantage of the de minimis exemption to undercut their brand on pricing and margin.
What is De Minimis and How Does it Affect Forever 21?
De minimis refers to the U.S. waiver of tariffs and customs procedures on imported items worth less than $800. This helps Chinese online retailers like Shein and Temu to keep prices ultralow, making it difficult for Forever 21 to compete. Forever 21 entered bankruptcy with $1.58 billion in debt, after losing more than $400 million over the last three years.
The company lost $150 million in 2024 alone, and was projected to lose approximately $180 million in 2025, according to documents filed in a Wilmington, Del., bankruptcy court. Founded in Los Angeles in 1984 by South Korean immigrants, Forever 21 was popular among young shoppers on the prowl for stylish but affordable clothing.
A Brief History of Forever 21
At its peak, Forever 21 employed 43,000 people, operated 800 stores globally, and recorded over $4 billion in annual sales, according to court documents. However, the rise of e-commerce retailers and the slow death of the American mall hurt apparel companies such as Forever 21 and Bonobos parent Express, which filed for bankruptcy last year.
“Brick-and-mortar retailers like Forever 21 operate in a highly competitive environment where the cost of doing business is expensive and rising with inflation rates,” said Sarah Foss, head of legal and restructuring at Debtwire, which provides data and analytics on leveraged loans. The retail sector saw 20 bankruptcy filings since the start of 2024, while 25 retail chains have had at least two bankruptcy filings since 2016, according to Debtwire data.
What’s Next for Forever 21?
The company will continue to engage with potential buyers who wish to purchase some or all of its U.S. business. Its international stores remain unaffected by the bankruptcy. Forever 21 previously filed for bankruptcy protection in 2019 and was brought out of it by Sparc Group, a joint venture between label owner Authentic Brands Group and mall operators Simon Property and Brookfield Asset Management.
It experienced a brief post-bankruptcy rebound, recording revenue of $2 billion in 2021, before losses started to pile up again the following year. In 2023, Shein acquired a stake in Sparc group, in a deal framed as a partnership that would allow Forever 21 to sell certain items on Shein’s website. But it failed to stem the company’s losses, Forever 21 said in court filings.
A group of buyers — including Simon Property Group, Brookfield Corp. and Authentic Brands — teamed up to buy Forever 21 out of bankruptcy through a venture called Sparc Group. That group partnered with Shein in 2023 as Forever 21 attempted to solve some of its operational issues. U.S. retail group JCPenney acquired Sparc in December to form Catalyst Brands in a deal which saw its previous shareholders maintain minority stakes in the company.
Authentic Brands will continue to own Forever 21’s trademark and intellectual property, which could live on in some form. Its CEO Jamie Salter last year called acquiring Forever 21 “the biggest mistake I made.” The company plans to hold liquidation sales at its stores while conducting a court-supervised sales process for at least some of its assets, it said in a statement Sunday.
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Conclusion
Forever 21’s bankruptcy filing is a significant event in the retail industry, highlighting the challenges faced by brick-and-mortar stores in a highly competitive environment. The company’s inability to compete with foreign fast-fashion companies and its significant debt have led to its downfall. As the retail landscape continues to evolve, it will be interesting to see how Forever 21’s story unfolds and what the future holds for the company.
Frequently Asked Questions
Q: What happened to Forever 21?
A: Forever 21 filed for bankruptcy for the second time due to rising inflation and intense competition in the fast-fashion sector.
Q: Why did Forever 21 file for bankruptcy?
A: Forever 21 filed for bankruptcy due to higher costs and companies taking advantage of duty-free treatment of low-cost packages from China to undermine its pricing power.
Q: What will happen to Forever 21’s stores?
A: Forever 21 will start conducting store-closing sales at all of its U.S. locations and will honor customer gift cards during the first 30 days of its bankruptcy.
Q: Will Forever 21’s international stores be affected?
A: No, Forever 21’s international stores will not be affected by the bankruptcy.
Q: What’s next for Forever 21?
A: The company will continue to engage with potential buyers who wish to purchase some or all of its U.S. business and will hold liquidation sales at its stores while conducting a court-supervised sales process for at least some of its assets.
