Forever 21 Faces Potential Liquidation Amidst Store Closures and Layoffs

Forever 21, the fast-fashion retailer known for its trendy and affordable clothing, is facing significant financial challenges that could lead to a complete liquidation of its U.S. assets. As stores across the country announce closures, the company is preparing to lay off over 350 employees from its Los Angeles corporate office, which it also plans to shut down.

The operating company of Forever 21 disclosed its plans in a Worker Adjustment and Retraining Notification (WARN) notice, revealing the impending layoff of approximately 358 employees and the closure of its headquarters. This move comes as Forever 21 struggles to compete with the rise of Chinese online discount retailers such as Shein and Temu, which have disrupted the fast-fashion industry with their even lower prices and vast product selections.

The layoffs are scheduled to begin on April 21, according to the WARN notice dated February 14. The cuts will affect a wide range of positions, including managers, designers, supply chain directors, and even the company’s chief financial and chief merchandising officers. Employees who remain with the company will transition to remote work after the corporate headquarters closes its doors.

"This decision was not made lightly," a Forever 21 spokesperson said in a statement. "And we remain committed to transparency and fair treatment of our employees during this period of transition." The statement further indicated that the company is exploring ways to reduce costs across its operations and optimize its store footprint.

While Forever 21 has not yet specified the exact number of stores it plans to close, reports of closures have emerged from multiple states, including Connecticut, California, Washington state, Pennsylvania, Idaho, and North Dakota. The company’s struggles have led to speculation about a potential sale of the chain to avoid bankruptcy, as reported by the Wall Street Journal in early February. CNBC and Bloomberg have also suggested that the company is considering filing for bankruptcy.

"No final decisions have been made" regarding the company’s next steps, according to Forever 21. The retailer emphasizes that it is still evaluating its options and the number of store closures has not been finalized.

The current situation marks a significant downturn for Forever 21, which had previously emerged from Chapter 11 bankruptcy protection five years ago. In 2020, mall owners Simon Property Group and Brookfield Corporation, in partnership with Authentic Brands Group, acquired the fast-fashion retailer out of bankruptcy, rescuing it from potential liquidation.

However, Jamie Salter, the chief executive of Authentic Brands, has since expressed regret over the acquisition, stating during a conference in 2023 that acquiring Forever 21 was "probably the biggest mistake I made."

Sarah Foss, head of legal at Debtwire and an expert bankruptcy lawyer, believes that Chapter 11 liquidation appears to be the most likely scenario for the retail chain. According to Foss, a "going concern buyer" for Forever 21’s U.S. assets and leases has not yet emerged, making a complete liquidation of the company’s U.S. operations a distinct possibility.

A liquidation would have a significant impact on shopping malls nationwide, which have already struggled in recent years due to the rise of online shopping. The closure of Forever 21 stores would leave vacant spaces in malls across the country, further exacerbating the challenges faced by brick-and-mortar retail. The impact would also be felt by Forever 21’s store employees, who would lose their jobs.

Despite the potential liquidation of its U.S. assets, Forever 21’s brand and intellectual property, which are owned by Authentic Brands Group, may survive. Foss pointed out that shutting down the company’s retail stores would "not mean the end of Forever 21." The intellectual property can hold significant value even as distressed sales are occurring, allowing Authentic Brands Group to potentially license the brand or explore other avenues to keep it alive.

Debtwire data reveals a concerning trend in the retail sector, with 20 Chapter 11 filings since the beginning of 2024. Furthermore, 25 companies in the retail sector have experienced at least two bankruptcy filings since 2016, highlighting the ongoing challenges faced by retailers in a rapidly changing market.

The potential liquidation of Forever 21 underscores the intense competition and evolving consumer preferences that are reshaping the retail landscape. The rise of online retailers, particularly those offering deep discounts and a vast selection of products, has put immense pressure on traditional brick-and-mortar retailers like Forever 21. To survive, retailers must adapt to the changing market dynamics, embrace innovation, and find ways to differentiate themselves from the competition. Whether Forever 21 can navigate these challenges remains to be seen, but the road ahead appears fraught with difficulties. The future of Forever 21 in the United States hangs in the balance, with the fate of its stores, employees, and brand yet to be determined.