Forever 21 Files for Bankruptcy for Second Time in 6 Years

Forever 21's U.S. operating company on Sunday filed for bankruptcy for the second time in six years and said it would wind down its domestic operations, hurt by mounting online competition in the fast-fashion sector and weak mall traffic, reports Reuters. It 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.

"We've been unable to find a sustainable path forward, given competition from foreign fast-fashion companies, which have been able to take advantage of the de minimis exemption to undercut our brand on pricing and margin," said Brad Sell, finance chief at the company that operates Forever 21's 354 U.S. stores.

De minimis refers to the U.S. waiver of tariffs and customs procedures on imported items shipped to individuals that are worth less than $800. It helps Chinese online retailers like Shein and Temu to keep prices ultra-low. U.S. President Donald Trump paused his administration's repeal of the clause in February after the rapid change created disruptions for customs inspectors, postal and delivery services, and online retailers.

Forever 21 is conducting store closing sales at all of its U.S. locations. 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.

Total Retail's Take: Once one of the top fast-fashion brick-and-mortar retailers in the U.S., Forever 21 hasn't been able to sustain its positive momentum against the rise of e-commerce shops, especially ultra-low priced online retailers like Shein and Temu. Couple that challenge with the demise of traditional American malls, and the retailer was in a downward tailspin. Forever 21 entered bankruptcy with $1.58 billion in debt, after losing more than $400 million over the last three years.

However, Shein and other fast-fashion retailers' growth isn't all to blame for Forever 21's struggles. According to Greg Zakowicz, senior e-commerce expert at Omnisend, Forever 21 failed to adapt over many years to a changing consumer environment. "Today’s retailers need to be agile organizations, adapting their supply chain, manufacturing and channel experiences as needed to meet today’s shoppers," Zakowicz noted in a statement to Total Retail. "Need proof? Many companies continue to grow despite competing with Shein."

Unless it finds a buyer, and quickly, Forever 21 will finish closing all 354 U.S. stores by May 1. Forever 21’s declines and disadvantages aren’t helping it attract suitors. Authentic Brands Group still owns the retailer's intellectual property and may license it to other operators, according to a press release. Forever 21 store locations and e-commerce sites outside the U.S. are operating under other licensees and are not included in the Chapter 11 filings.