Forever 21’s US operator on Sunday filed for bankruptcy for the second time in six years and said it would wind down operations in the country, hurt by mounting online competition in the fast-fashion sector and weak mall traffic.
The company blamed the situation on higher costs and foreign companies taking advantage of duty-free treatment of low-cost packages from China to undermine its pricing power.
“We’ve 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 exemption to undercut our brand on pricing and margin,” said Brad Sell, finance chief at F21 OpCo that operates Forever 21’s roughly 350 US stores.
De minimis refers to the US waiver of standard customs procedures and tariffs on imported items worth less than $800 that are shipped to individuals and helps Chinese online retailers such as Shein and Temu to keep prices ultra-low.
Donald Trump paused his administration’s repeal of the clause as part of the fresh tariffs imposed on China in February.
Founded in Los Angeles in 1984 by South Korean immigrants, Forever 21 was popular among young shoppers on the prowl for stylish but affordable clothing. By 2016, it operated about 800 stores globally, of which 500 were in the US.
But, the rise of e-commerce retailers and the slow death of the American mega mall hurt apparel companies such as Forever 21 and Bonobos-parent Express, which filed for bankruptcy last year.
“Brick-and-mortar retailers like Forever 21 operate in a highly competitive environment where the cost of doing business is expensive and rising with inflation rates,” Sarah Foss, head of legal and restructuring at Debtwire, which provides data and analytics on leveraged loans.
The retail sector saw 20 bankruptcy filings since the start of 2024, while 25 retail chains have had at least two bankruptcy filings since 2016, according to Debtwire data.
F21 OpCo is planning for liquidation sales at its US stores, while it goes through a court-supervised sale and marketing process for its assets, which it estimated to be worth around $100m to $500m.
Its US stores and website will remain open through the process and its international stores remain unaffected.
It has liabilities in the range of $1bn to $10bn, according to a filing with bankruptcy court in the district of Delaware.
Forever 21 previously filed for bankruptcy protection in 2019 and was brought out of it by Sparc Group, a joint venture between label owner Authentic Brands Group and mall operators Simon Property and Brookfield Asset Management.
It is now owned by Catalyst Brands, an entity formed on 8 January through the merger of Sparc and JC Penney, a department store chain owned since 2020 by mall operators and Simon Property Group.
When Catalyst Brands was formed, it said it was “exploring strategic options” for Forever 21.
Authentic Brands will continue to own Forever 21’s trademark and intellectual property, which could live on in some form. Its CEO, Jamie Salter, last year called acquiring Forever 21 “the biggest mistake I made”.