Forever 21 seeks financing as cash dwindles

Forever 21 Inc. is scrambling to line up additional financing this month as cash to pay vendors and landlords dwindles to a critical level, according to people with knowledge of the matter.

The Los Angeles clothing retailer is in discussions with potential lenders for financing including a so-called FILO loan, said the people, who asked for anonymity. Fresh cash is key as Forever 21 — which has about 800 stores worldwide and more than $3 billion in estimated annual sales — heads into the period for building holiday inventory while its business is struggling, the people said.

Named after the “first in, last out” accounting method for inventory, FILO loans are senior debt backed by a company’s inventory and other assets and supplement the so-called asset-based loans retailers use for their primary needs.

Representatives for Forever 21 didn’t respond to a request for comment. The retailer has hired a team of advisors, Bloomberg previously reported, to help it restructure its debt and revive its business. Co-founder Do Won Chang is determined to maintain control, which could limit the company’s options, the people said.

A small faction of Forever 21 officials have asked its biggest landlords to consider taking a stake in the company amid disagreement within its leadership on how to turn the company around, Bloomberg has reported.

Founded in 1984, the company focuses on young shoppers looking for trendy clothes at affordable prices. Competitors, including Target Corp. and new online sellers, have crowded into its niche, weighing on profits.

Any pullback could add to pressure on retail landlords, who are already reeling from rising vacancies as stores have gone bankrupt, sold off outlets or both.

Coleman-Lochner and Ronalds-Hannon write for Bloomberg.