A photo of a fashion retail Forever 21 store in London on September 30, 2019.
Alberto Pezzagli | Noor Photos | Getty Images
Forever 21 is asking landlords for rent relief as its sales decline and it struggles to keep up with savvier competitors, according to CNBC.
The retailer, which has more than 380 stores in the United States, has asked some landlords to cut rents by as much as 50%, people familiar with the matter told CNBC.
While the company faces financial difficulties, it has not yet hired advisers and is not considering filing for bankruptcy a second time, people familiar with the matter said. They said the company was working to restructure many of its leases to cut costs.
Forever 21 faces a series of problems that have long plagued its business. The company operates in an increasingly saturated fast-fashion market and struggles to manage inventory and understand and respond to consumers, one of the people said.
The retailer struggled after filing for bankruptcy in 2019 and was later acquired by a consortium including brand management firm Authentic Brands Group and landlords Simon Property Group and Brookfield Property Partners.
When the company sought bankruptcy protection, it had more than 800 branches worldwide.
Like many retailers, Forever 21 first filed for bankruptcy when its massive store size put a strain on its balance sheet. The retailer expanded too quickly during its growth phase, preventing it from investing in its supply chain and responding quickly to changing trends.
Closing hundreds of stores after filing for bankruptcy did not solve its problems.
Forever 21’s financial health also hurt the performance of its operator, Sparc Group. Sparc was responsible for operating Forever 21 and many other previously bankrupt retailers, including Aeropostale, Brooks Brothers and Lucky Brand.
Sparc declined to comment to CNBC. Simon did not respond to a request for comment.
Sparc is always under pressure.
Sparc has been reviewing its budget and dealing with its own financial woes, people familiar with the matter said.
Many of the challenges Sparc faces come from the difficulty of merging its many legacy brands and trying to centralize its teams, technology, marketing, e-commerce, procurement and supply chain, one of the people said. It also faces the problem of running a long-term brand Mainly in shopping malls.
Expensive rents for underperforming stores, relative to their size, tend to overwhelm retailers’ balance sheets and drain cash.
Forever 21 has been paying its suppliers late over the last year, according to Creditsafe, a business intelligence platform that analyzes companies’ financial, legal and compliance risks. Creditsafe data shows Forever 21’s payment patterns to suppliers have fluctuated, with some bills being more than 70 days overdue in late 2023.
Many companies, including many healthy ones, go weeks or months without paying their bills, but late payments can also be a sign of larger financial problems. Creditsafe spokesperson Ragini Bhalla said the industry average overdue period had hovered between 12 and 13 days over the past 12 months.
racing competition
In the past, Forever 21’s main competitors included H&M and Zara. Today, its biggest enemies are ultra-fast fashion retailers like Shein and Temu.
“Speed is almost impossible to compete with. So if you juxtapose any brand from 20 years ago with these new, manufacturing-on-demand fast fashion companies… it’s like comparing a cell phone from 2000 to the latest iPhone. Same. “Whenever someone goes viral on TikTok with a new outfit, Shein launches it instantly and no regular brand can keep up. ”
On October 19, 2023, fast fashion e-commerce giant Shein opened a physical pop-up store inside Forever 21 at Ontario Mills Mall in Ontario. On its opening day, shoppers walked past the advertisement.
Alan J. Cockroach | Los Angeles Times | Getty Images
At the ICR conference in January, Authentic Brands CEO Jamie Salter said the Forever 21 acquisition was “probably the biggest mistake of his career,” adding that he had previously failed to recognize Shein and Temu posed a competitive threat and therefore made mistakes.
He recalled a conversation he had with Simon CEO David Simon, who asked Salter why he wanted to work with Shein.
“I said, ‘David, this is the right decision, we can’t beat them. Their supply chain is too good. They know what’s going on. They’ve figured it out. We need to work with them,'” Salter said. recalled. “So I was the one who had the courage to say, ‘Let’s work with these people.'”
As part of the partnership between the two retailers, Shein will design, Manufacture and distribute a line of co-branded Forever 21 apparel and accessories, which will be sold primarily on Shein’s website. One of the people said Forever 21 also opened Shein pop-up stores and began accepting Shein returns, both of which have brought positive traffic to Forever 21 stores.
The two companies initially joined forces in August last year, with Shein acquiring about one-third of Sparc’s shares and Sparc holding a minority stake in Shein, under the terms of the agreement.
Given Forever 21’s concerns about leasing and the success of Shein’s pop-up stores, some industry observers have questioned whether the digital giant will soon take over Forever 21’s stores. However, one of the people said this is unlikely because the retailer lacks brick-and-mortar retail experience and its business model involves small batch production and constantly changing inventory based on trends.
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