Forever 21 not forever anymore after filing bankruptcy in changing retail landscape

October 18, 2019

Karina Huber | CGTN America

It’s a tough time to be a retail property landlord. Moody’s Analytics’ Reis says shopping mall vacancies were at an eight-year time high in Q3 at 9.4%. Retail landlords are bracing for more store closures with Forever 21 filing for bankruptcy. It’s the latest company to seek protection and a chance to restructure in the face of online competition, rising debt and changing consumer tastes.

35 years after launching in Los Angeles, U.S. retail giant Forever 21 declared bankruptcy in September announcing it will close around 350 stores in 40 countries, shutting down most of its operations in Asia and Europe.

The brand, which is a leader of so-called “fast fashion,” has been plagued by heavy debt after an aggressive push into foreign markets.

“Forever 21 went from success to following the K-Mart proverbial McKinsey strategy of planting a flag in every major market in the established world and, as a result, got spread out too thin,” said Burt Flickinger, Managing Director of Strategic Resource Group.

Forever 21, like many retailers, has been struggling with rising rents. Barney’s New York recently filed for Chapter 11, in part, because rent at its flagship store in New York almost doubled in January from 16 million to around 30 million dollars.

At the same time, some brands have struggled to stay relevant in the digital age. Children’s retailer Gymboree declared bankruptcy in January, in part, because competition from e-commerce.

2019 has been a particularly brutal year for U.S. retailers. More than 8200 stores have shut their doors in the U.S. so far and more bankruptcies are expected in what has been dubbed a retail apocalypse.

J. Crew has been struggling to stay relevant among consumers and the American owner of Ann Taylor, Loft, Lane Bryant and other retail brands is heavily in debt.

Reshmi Basu, Restructuring Editor at Debtwire, said many of the brands declaring bankruptcy don’t plan on going away entirely. The process helps them cut costs.

“The reason why a number of retailers will file for bankruptcy is because they want to reject the leases in a court process and also get a massive haircut on their debt,” she said.

Mark Greiz, Marketing Strategist at Mark Greiz Consulting and an adjunct professor at the Fashion Institute of Technology, said Forever 21 is making the right move.

”There’s a lot of fat within the organization that needs to be trimmed and if they trim that fat, if they get back down to their core principles – giving product that the consumers want at good prices with a very solid digital strategy, an ‘omnichannel’ strategy – I think the brand could still reinvent themselves and do quite well,” he said.