Beleaguered retailer Forever 21 is in talks with liquidators about future steps for the fast fashion company, according to people familiar with the matter — a sign that it’s struggling to find a buyer as it mulls a second bankruptcy filing.
The company has been looking for a buyer to stave off extinction, the people said, and in early January announced it was exploring strategic options. However, opening up the discussion to include liquidators gives Forever 21 the option to use those proceeds to pay back creditors if it can’t find a buyer.
It could be difficult for Forever 21 to find a buyer that could successfully turn around the brand as it contends with heightened competition from Chinese e-tailers Shein and Temu; higher tariffs; and the loss of its cool factor, said the people, some of whom saw the company’s books. The people spoke to CNBC on the condition of anonymity due to the sensitive nature of the discussions.
Forever 21 has also long struggled with profitability and has faced difficulties with managing inventory and reining in costs, some of the people said.
It’s unclear if Forever 21 has hired a liquidator yet, and, even if it does, whether it will ultimately move in that direction. The retailer could still find a buyer, for some or all of its assets, or make a deal with creditors to avoid liquidation.
Forever 21 declined to comment. BRG, the advisory firm it’s reportedly working with for restructuring assistance, didn’t return a request for comment.
The discussions come months after CNBC reported that Forever 21 was having financial difficulties and asking landlords to cut its rent by as much as 50% in some locations as it looked to rein in costs.
It wasn’t yet considering a second bankruptcy filing at the time, but its position has worsened in the months since. Its partnership with its rival-turned-partner Shein has also been a mixed bag, with the CEO of brand management company Authentic Brands Group Jamie Salter calling it a work in progress last year during a presentation.
As Forever 21’s efforts to cut costs and boost sales have faltered, the company is now considering a second bankruptcy filing, the people said, confirming what the The Wall Street Journal earlier reported.
Forever 21 filed for bankruptcy protection in 2019, and was later bought by a consortium including Authentic Brands Group and landlords Simon Property Group and Brookfield Property Partners.
The company’s first trip through Chapter 11 allowed it to restructure its balance sheet and end a number of costly leases, but in the years since, it hasn’t managed to fix its business and adapt to new competitive threats.
Once one of fast fashion’s heavyweights, Forever 21 has been all but replaced by the category’s new titans: Shein and Temu. The online-only companies have technology and artificial intelligence embedded into their operating models and aren’t encumbered by costly stores. They’ve become adept at recognizing and responding to consumer trends at speeds so fast the rest of the retail industry has struggled to keep up.
Since Shein is part of Sparc Group, which runs Forever 21’s operations, some industry observers have questioned if the e-tailer would take over its stores. Acquiring some of Forever 21’s assets could help further legitimize Shein in the U.S. and globally as it pursues a public listing in London, but one person close to the company previously said that was unlikely because of its inexperience in physical retail.
Forever 21’s struggles indicate how much the category has evolved over the last few years and how difficult it is for others, especially those with large store footprints, to survive in the new landscape.
The amplified competition from Shein and Temu, and the havoc the e-tailers are causing for retailers, is similar to the rise of Amazon in decades past, which contributed to an onslaught of retailer bankruptcy filings and liquidations.
It also fueled the rise of brand management firms like Authentic Brands, which acquire the intellectual property of brands and, in some cases, revive them years later.
However, since Authentic Brands already owns Forever 21’s intellectual property, it’s unclear who would be interested in acquiring the retailer, said Sarah Foss, a restructuring attorney and Debtwire’s head of legal. Authentic Brands and similar firms are often first in line to acquire intellectual property of companies headed for a bankruptcy filing.
“Those are often the front runners we’re seeing in some of these retail bankruptcies,” said Foss. “So it’d be interesting to see who comes forward to buy Forever 21, or pieces of it.”
— Additional reporting by CNBC’s Lillian Rizzo
