Goodbye Forever 21? Iconic store closes in the U.S. and blames Shein and Temu for demise

Forever 21, the iconic American fast-fashion retail chain, has been unable to keep pace with its main competitors - low-cost fashion outlets such as Shein, Temu, H&M, Inditex and Uniqlo. The fierce competition in the booming fast-fashion industry, coupled with the rise of E-commerce and inflation-driven inventory costs and competing in a saturated market, has forced Forever 21 to file for bankruptcy for the second time in six years.

According to court filings, F21 OpCo, the company operating Forever 21 stores, has declared Chapter 11 bankruptcy with a total debt of approximately $1.58 billion.

Founded in Los Angeles in 1984, Forever 21 offers women’s, men’s, and children’s clothing as well as accessories at affordable prices. By 2016, the retailer had over 800 stores worldwide - 500 of them in the United States. But F21 OpCo has been hemorrhaging money for some time. In 2019, the company filed for bankruptcy and downsized by closing hundreds of stores and pulling out of several European and Asian countries. During the past three fiscal years, it’s losses were $400 million.

Forever 21 enters liquidation and is looking for a buyer

F21 OpCo plans to conduct an orderly liquidation of its business and store inventory while exploring options to sell the company or parts of its assets. This process will be overseen by a Delaware court. Despite the bankruptcy proceedings, Forever 21 stores and its website will remain open during the liquidation phase.

Brad Sell, F21 OpCo’s Chief Financial Officer, explained in a press release that the company is considering both liquidation and sale options. He explained, “While we have evaluated all options to best position the company for the future, we have 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 trade exemption to undercut our brand on pricing and margin.”

De minimis exemption benefits Forever 21’s chief competitors

The de minimis exemption, initially removed by former President Donald Trump for imports from China, exempts shipments under $800 from tariffs. However, overwhelmed customs services failed to enforce the tariffs, leading Trump to reverse the policy. Chinese companies like Temu and Shein have particularly benefited from this exemption.

Forever 21’s international stores, which are operated by other license holders, are not included in the bankruptcy filing and will continue to operate, as will its global E-commerce platforms. Authentic Brands Group retains the intellectual property rights associated with the Forever 21 brand and can license it to other operators.

The company’s failure to recover from its first real crisis in September 2019 resulted in significant financial losses for creditors, the closure of hundreds of stores, and its sale to a group of buyers, including Simon Property Group, Brookfield, and Authentic Brands, through Sparc Group. According to FOX Business, Forever 21 is currently owned by Catalyst Brands.

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