Forever 21 Files for Chapter 11 Bankruptcy Protection

Following much outside speculation over the last few months, Los Angeles–headquartered Forever 21 filed for Chapter 11 bankruptcy protection last weekend. On Sept. 29, documents were filed in the United States Bankruptcy Court for the District of Delaware.

With 549 stores across the United States and 251 international locations, Forever 21 is seeking to restructure its operations and has requested approval to close 178 underperforming stores across the U.S., according to a company representative. On Oct. 1, the company revealed the locations of its stores that would potentially close. These included a number of California locations, among them stores at 2 Stockton Street in San Francisco, 901 State St. in Santa Barbara, The Americana at Brand in Glendale, Anaheim Plaza in Anaheim, Beverly Center in Los Angeles, Chico Mall in Chico, Del Monte Shopping Center in Monterey, Fashion Island in Newport Beach, Fresno Fashion Fair in Fresno, Galleria @ Roseville in Roseville, The Galleria @ South Bay in Redondo Beach, the Galleria at Tyler in Riverside, the Glendale Galleria in Glendale, Hillsdale Shopping Center in San Mateo, Inland Center in San Bernardino, Lakewood Center Mall in Lakewood, Mission Valley in San Diego, Northgate Mall in San Rafael, Northridge Mall in Salinas, Oakridge Mall in San Jose, The Oaks inThousand Oaks, Pacific View Ventura Mall in Ventura, Palladio in Folsom, Parkway Plaza in Cajon, The Plant (an F21 Red location) in Van Nuys, The River at Rancho Mirage in Rancho Mirage, Sherman Oaks Fashion Square in Sherman Oaks, The Shops @ Tanforan in San Bruno, Solano in Fairfield, Sun Valley in Concord, Tulare Outlet Center in Tulare, Tustin Marketplace (an F21 Location) in Tustin, University Town Center in San Diego, Valencia Town Center in Valencia, Vintage Faire in Modesto, Westfield Culver City in Culver City, Westfield Santa Anita in Arcadia, and Westfield Topanga Plaza in Los Angeles.

“They are going to try to come out leaner and meaner out of bankruptcy and use the process to eliminate certain store locations that may not be profitable or performing as Forever 21 would like them to be performing,” said Marcus Colabianchi, a partner specializing in bankruptcy and creditors’ rights at the San Francisco office of law firm Duane Morris. “Over the next 30, 60, 90 days, a lot of negotiating will be taking place between Forever 21 and its landlords in terms of potentially restructuring leases, terminating some leases—which they can do in the bankruptcy process—and to come out with a smaller footprint than what they currently have internationally and domestically.”

Thinking about Forever 21’s navigation through the bankruptcy process, Syama Meagher, chief executive officer of the Los Angeles–based Scaling Retail consultancy, felt that this challenge could benefit the retailer.

“When people talk about bankruptcy, they overdramatize it,” she said. “With a financial restructuring, in terms of who is restructuring these businesses, you bail them out, break it up, and exploit the pieces that would turn the highest profit and juice the brand for what it’s worth.”

In the bankruptcy filings, the company revealed that it owes between $1 billion and $10 billion to more than 100,000 creditors including the Simon Property Group, Brookfield Properties, FedEx and Los Angeles–based A&E Clothing Inc. The company has secured $275 million in financing from its existing lenders with JPMorgan Chase Bank, N.A., in addition to $75 million in new capital from TPG Sixth Street Partners.

“The financing provided by JPMorgan and TPG Sixth Street Partners will arm Forever 21 with the capital necessary to effect critical changes in the U.S. and abroad to revitalize our brand and fuel our growth, allowing us to meet our ongoing obligations to customers, vendors and employees,” Forever 21 Executive Vice President Linda Chang said in the press release.

According to Meagher, the steps that Forever 21 takes next will be most crucial to the company’s survival. She advises the company and others with a similar business model to be proactive in this shifting retail environment of pivoting to meet the fresh needs of a new generation of bricks-and-mortar shoppers.

“Eighty percent of Gen Z are going into stores,” she said. “Gen Z is the generation that Forever 21 was built off of. But Forever 21 didn’t pare down on its generational strategies. They got tied up with more top-heavy growth.”

To attract this demographic, Meagher advises more experiential offerings such as incorporating technology that blends e-commerce and gamification. Retailers must work with existing spaces to efficiently reinvent their brands.

News of the bankruptcy filing follows the opening of a new Los Angeles location on Sept. 13, at the Hollywood & Highland retail center, which also houses the Dolby Theatre, host to the Academy Awards. Along with a Pasadena, Calif., location this most recent Hollywood & Highland location appeared on the list of possible store closures. Forever 21 was founded by Jin Sook and Do Won (Don) Chang in 1984 as a single boutique located near downtown Los Angeles.