A victim of changing consumer preferences, the fashion company files for bankruptcy, will shut stores
Forever 21, the Los Angeles retailer that popularized fast fashion among American teenagers, has filed for bankruptcy, the latest victim of changing consumer preferences and the decline of the shopping mall.
The company, which sought Chapter 11 bankruptcy protection in Delaware on Sunday evening, plans to close up to 178 of its 549 stores nationwide, as well as cease operations in 40 countries. The major mall tenant, which plans to retain stores in major U.S. markets and Latin America, has a dozen stores in the Houston area.
“The decisions as to which domestic stores will be closing are ongoing, pending the outcome of continued conversations with landlords,” Forever 21 said in a statement.
The retailer in its bankruptcy filing said it owed $347 million to vendors and has $228 million in outstanding loans. The company has secured up to $350 million in financing to help fund its operations through bankruptcy proceedings.
Forever 21 joins a long list of brick-and-mortar retail
ers that are shuttering stores as shoppers have increasingly migrated to online retailers in recent years. Retailers so far this year have announced 8,567 store closures across the country, surpassing the 5,844 closures reported in 2018, according to the Coresight Research store tracker report. The retail data firm forecasts U.S. store closures could hit 12,000 by the end of the year, a staggering figure that underscores the extent of the so-called “retail apocalypse” that has followed the rise of e-commerce.
Forever 21 is the second fastfashion retailer to file for bankruptcy this year after Houstonbased Charming Charlie sought Chapter 11 bankruptcy protection in July for the second time in less than two years. Rather than reorganize, Charming Charlie liquidated its business and sold its trademarks to its founder, who is trying to revive the brand online.
Retail pioneer
Jin Sook and Do Won Chang, entrepreneurs who immigrated to the U.S. from South Korea, founded Forever 21 in 1984 with $11,000 and a 900-square-foot store in the hip Highland Park neighborhood of Los Angeles. The retailer pioneered fast-fashion, in which retailers collaborate closely with manufacturers to bring fashion trends from the catwalk to stores quickly and cheaply. These stores targeted shoppers in their teens and early 20s, who desire the latest fashions at affordable prices.
Forever 21 was an instant success, selling $700,000 of clothes, jewelry, handbags, cosmetics, scarves and shoes in its first year. The Changs soon enlisted family in Houston and Northern California to open additional stores along the West Coast and the Gulf states. Today, the Changs retain a 56 percent ownership stake in the company.
Growth exploded after the 2008 recession, which increased demand for trendy fashion at low prices. Between 2005 and 2015, Forever 21 opened more than 200 stores worldwide at a rate of one new store every six months. Many of these new stores, which averaged 38,000 square feet, took space from some of America’s largest retailers, including Sears, Saks and Borders.
At the peak of its meteoric rise in 2014, Forever 21 reported $4.1 billion in annual sales. It opened stores in high-profile locations, such as New York’s Times Square, London’s Oxford Street and Tokyo’s Shibuya District.
This rapid expansion, however, challenged Forever 21’s supply chain, which ultimately failed to keep up with fast-changing fashion trends. The retailer also struggled under the weight of its large-format stores as its annual occupancy costs reached $450 million. Although online sales were growing, they represented 16 percent of the company’s overall sales.
At the same time, Forever 21 faced growing competition from other fast-fashion retailers, including Swedish H&M, Japanese Uniqlo and Spanish Zara. Houston-based Francesca’s, which has also struggled to draw shoppers amid declining mall traffic, recently pivoted toward a fast-fashion model.
Finally, Forever 21 failed to adapt to changing consumer preferences as millennials entered the workforce and the national economy slowly recovered from the Great Recession. With more money in their pockets, many millennials and environmentally conscious consumers eschewed fast-fashion in favor of more expensive, but durable wardrobes.
“Consumers are choosing items that are longer lasting,” said Venky Shankar, research director of Texas A&M University’s Center for Retailing Studies. “They don’t want to have this disposable mentality. They’re no longer going back to buying $5 and $10 tops.”
Leaving a void
Forever 21’s global annual sales fell to $3.1 billion in 2019 compared to $4.1 billion in 2014. The company’s stores in Canada, Europe and Asia lost on average about $10 million per month over the past year.
“These losses from international operations, compounded with the foregoing factors, have rendered Forever 21 unable to service its outstanding debt,” said Jonathan Goulding with Forever 21.
Shankar, the Texas A&M retail professor, said mall owners may find it difficult to replace Forever 21 stores that close. Forever 21 generates substantial rents. The retailer is the seventh biggest rent-paying tenant for mall owner Simon Property Group, which owns The Galleria and Houston Premium Outlets; and is the fifthbiggest for New York-based Brookfield, which owns several local malls including First Colony and Baybrook.
“It’s bound to leave a big void in malls,” Shankar said of the Forever 21 closures. “These big mall owners like Simon and Brookfield, they will have to rethink their model.”