Founders borrowed daughters’ funds as sales fell
NEWYORK: As Forever 21’s botched international expansion morphed into a moneyloser, its owners turned to a funding source less likely to say no: their own children.
Founders Jin Sook and Do Won Chang borrowed $5 million in 2015 from the trusts for each of their adult daughters, Linda and Esther Chang, paying them 2% interest. Now the offspring are named as unsecured creditors of their parents’ company in filings on Monday with Forever 21’s bankruptcy. Details of the family loans provide a glimpse into the workings of a company that, despite its size and profile, has operated in neartotal privacy in its business dealings, even as its sales by 2014 topped $4 billion. The documents didn’t specify how large the trust funds were or how big a portion of the funds were drained by the loans.
Representatives for Los Angeles-based Forever 21 didn’t immediately respond to a request for comment.
The loans coincide with an ill-fated global expansion that featured the launch of more than 200 stores globally between 2005 and 2015. The project had been championed by Do Won Chang, Forever 21’s chief executive officer.
But the new stores were too expensive and too big to stock, with many exceeding 35,000 square feet, according to court papers. That strained Forever 21’s supply chain, and the brand’s skimpy Southern California aesthetic failed to resonate abroad, especially in Asia. By the tail end of the expansion, the new stores were reporting earnings down 137%, the papers showed.