Forever 21 Files for Bankruptcy Again Amidst Fast Fashion Wars and Economic Headwinds
Forever 21, the once-ubiquitous fast-fashion retailer, has filed for Chapter 11 bankruptcy protection for the second time in six years, signaling the intense pressures facing brick-and-mortar stores in a rapidly evolving retail landscape. F21 OpCo, the company that operates Forever 21, announced the voluntary filing in the U.S. Bankruptcy Court for the District of Delaware, initiating a process of winding down its U.S. business operations while actively seeking a buyer for its remaining assets.
Despite the bankruptcy filing, Forever 21’s U.S. stores and its online platform will remain open during this transition period. The company has also filed motions with the court to ensure employees continue to receive their wages and benefits through the use of cash collateral.
The bankruptcy filing comes after a series of store closures across several states, including Connecticut, California, Washington, Pennsylvania, Idaho, and North Dakota. Last month, Forever 21 disclosed plans to lay off approximately 358 employees and shutter its headquarters in Los Angeles, California, further indicating the company’s struggles.
Brad Sell, chief financial officer of F21 OpCo, attributed the bankruptcy to several factors, most notably the fierce competition from foreign fast fashion companies, particularly those leveraging the "de minimis exemption" to undercut Forever 21’s pricing. Rising costs, economic challenges impacting core customers, and changing consumer preferences were also cited as contributing factors.
Sell emphasized the company’s commitment to minimizing the impact on employees, customers, vendors, and other stakeholders throughout the bankruptcy process.
A primary driver of Forever 21’s financial woes is the intense competition from online fast fashion giants such as Shein and Temu. Jamie Salter, CEO of Authentic Brands, the owner of Forever 21’s brand and intellectual property, highlighted this challenge a year ago, noting that Forever 21’s partnership with Shein in 2023 yielded only modest results.
Salter explained that when Authentic Brands, along with mall owners Simon Property Group and Brookfield Corporation, rescued Forever 21 from bankruptcy five years prior, the competitive landscape was drastically different. The rise of Shein and Temu, with their incredibly efficient supply chains and aggressive pricing strategies, presented a new and formidable challenge. Salter admitted that Authentic Brands partnered with Shein because they recognized the impossibility of competing with their superior supply chain.
The "de minimis exemption" has played a significant role in the rise of Shein and Temu. This exemption allows shipments of items valued at or under $800 to enter the U.S. duty-free, with minimal paperwork. Chinese online retailers have capitalized on this exemption to offer clothing at remarkably low prices, putting immense pressure on traditional fast fashion retailers like Forever 21.
President Donald Trump had previously considered repealing the de minimis exemption but halted the effort due to disruptions it caused for customs inspectors, postal and delivery services, and online retailers.
While Forever 21 seeks a buyer for its assets, its stores will remain open and business will continue as usual. The company is currently offering significant discounts, including up to 80% off sitewide and up to 70% off select styles.
Sell expressed gratitude for the dedication of Forever 21’s employees, the support of its partners, and the loyalty of its customers.
Sarah Foss, head of legal at Debtwire and a bankruptcy lawyer, emphasized that the closure of Forever 21’s retail stores would not spell the end of the brand, as Authentic Brands Group owns the brand and intellectual property.
Jarrod Weber, global president for lifestyle at Authentic Brands, echoed this sentiment, stating that Forever 21 remains a recognizable and global brand with a strong future. He framed the current situation as an opportunity to adapt to the changing retail landscape and create a better balance between physical stores, e-commerce, and wholesale channels. He also stated that the US licensee’s decision to restructure will not impact Forever 21’s intellectual property or its international business.
Weber further elaborated that Authentic Brands aims to take the brand to "the next level" by building a direct creation-to-shelf model to accelerate production cycles and deliver the best products at the best prices. He noted that Authentic Brands has received significant interest from brand operators and digital experts to implement this strategy.
The bankruptcy filing marks a critical juncture for Forever 21, highlighting the challenges facing traditional retailers in the age of online fast fashion and shifting consumer behavior. The brand’s future hinges on finding a suitable buyer and successfully adapting to the evolving retail landscape. Authentic Brands’ plan to modernize the brand’s distribution model and leverage a direct creation-to-shelf approach may offer a path forward for Forever 21 to compete and lead in the fast fashion industry for decades to come. The restructuring also provides an opportunity for the brand to address some of the criticisms it has faced in the past, such as concerns about sustainable practices and ethical sourcing, and create a more responsible and appealing brand image for today’s consumers. Ultimately, the success of Forever 21’s resurgence will depend on its ability to innovate, adapt, and connect with a new generation of shoppers.
