(Jan 31): Bankrupt retailer Forever 21 Inc has asked a bankruptcy court to approve plans to sell “substantially all” of its assets to a buyer who might keep the chain in business.
Forever 21 is in “substantial, round-the-clock negotiations” with a potential stalking-horse bidder, which would set a minimum price for the fashion chain while it continues to seek bids for alternative transactions, according to a Thursday court filing.
Plans envision an auction process, with a sale hearing requested for Feb 4 and approval of the winner on Feb 11, the company’s lawyers wrote. The ultimate goal is a transaction that preserves Forever 21 as a going concern, they wrote.
The filing includes a proposed stalking-horse agreement but doesn’t name a potential bidder. Bloomberg previously reported that Authentic Brands Group LLC and Simon Property Group were mulling a plan to acquire the retail chain, but that there was no guarantee the various sides would agree on terms.
Mall Owners
Forever 21 was talking about selling a stake to Simon and its other largest landlord, Brookfield Property Partners LP, before it filed for bankruptcy in September, Bloomberg previously reported. Negotiations broke down and the company had to seek court protection without a reorganization plan in place.
The chain has since struggled to raise money to exit bankruptcy, with potential lenders and buyers balking because of poor sales and the founding Chang family’s insistence on maintaining control. Forever 21 told suppliers in recent weeks it’s short on cash and that it could be forced to liquidate if a buyer doesn’t emerge.
See: Forever 21 goes bust adding more stores to retail apocalypse
Forever 21 in October last year filed for bankruptcy, joining the growing list of fashion retailers felled by heavy competition, high rents and the defection of shoppers to online outlets.
Plans include cutting at least 178 domestic outlets from Forever 21’s approximately 800 stores, after a disastrous expansion outside the US.
All told, the retailer employs about 6,400 full-time and 26,400 part-time workers, court papers show. Forever 21 said it expects to exit most of its outlets in Asia and Europe, and it will shut all of its 44 Canadian stores that provide about 2,000 jobs, according to company statements.
Forever 21 suffered from the same cutthroat pricing and online competition that has forced other US retailers to close thousands of stores in the past two years. But its problems were deepened by inventory miscalculations – underspending one year, then overspending the next – and a botched international venture, according to court papers.
The rapid global expansion left the company stuck with locations that were too expensive and too big, court papers show. Despite having 262 stores by 2015 outside the US, it couldn’t achieve economies of scale because of geographical differences in taste and climate.
International Losses
The result: Forever 21 is losing US$10 million ($13.8 million) a month in Canada, Europe and Asia. Stateside sales are relatively strong, according to court papers filed in Wilmington, Delaware.
In addition to shuttering 178 US stores, the company plans to close all 44 of its Canadian outlets and 14 in Japan. It's also “exiting much of Europe and Asia,” according to a media representative.
Once popular among teenagers in the 2000s for its affordable but eye-catching designs, Forever 21’s signature bright-yellow shopping bags have become a rarer sight as Generation Z consumers – those born from 1998 onwards – shifted rapidly to e-commerce and streetwear brands.
The case is Forever 21 Inc, 19-12122, District of Delaware (Delaware).
