Forever 21, the go-to store for American teens for decades, is asking landlords to reduce rent by as much as 50 percent in some areas.
The retailer is facing financial troubles amid stiff competition from emerging players in the fast fashion sector.
The company is working to renegotiate the leases for its approximately 380 U.S. stores as a way to cut costs. CNBC reported. It has not yet appointed any special advisors and is not considering a second bankruptcy.
After filing for Chapter 11 bankruptcy in September 2019, it was bought by two retail operators and Authentic Brands in an $81 million deal.
At its peak in 2015, Forever 21 was worth $6 billion, making its married South Korean founders Do Won Chang and Jin Sook Chang extremely wealthy.
Forever 21 is renegotiating leases for its approximately 380 U.S. stores as commercial rents rise across the country
Forever 21 is facing a series of problems that have plagued its profitability for years.
These include increased competition from brick-and-mortar rivals and upstart online-only businesses, difficulties ensuring inventory levels are adequate and a loss of touch with what shoppers want.
Stores like H&M and Zara, also common in American malls, used to be Forever 21’s main competition in the fast fashion sector.
All three use a business model where they quickly produce trendy, cheap clothing and sell it quickly.
But in recent years, a new category has left ultra-fast fashion brands like Shein and Temu Forever 21 in the dust.
They don’t have the huge disadvantage of expensive physical locations and can get trendy outfits sold very quickly through viral social media posts.
“As soon as someone goes viral in a new outfit on TikTok, Shein makes it right away and no mainstream brand can keep up with that,” a person familiar with Forever 21’s thinking told CNBC.
‘It’s almost impossible to compete with the speed. So comparing a brand from about twenty years ago next to these new, on-demand fast-fashion companies is like comparing a cell phone from 2000 to the latest iPhone. The speed, the quality, everything is just different,” the person added.
Forever 21 has scaled back since filing for bankruptcy in 2019, when it had more than 800 locations worldwide.
That’s something experts told CNBC is a telltale sign that the company was growing way too fast in its growth phase in the early 2010s.
The crown jewel of the brand’s frenzied scaling was its 90,000-square-foot Times Square flagship store, which opened in 2010. It is unclear whether this location will be affected as the company continues to weigh its options going forward.
After filing for bankruptcy, Forever 21 tried to stem the bleeding by closing hundreds of stores, but its still-huge physical footprint is being severely strained by skyrocketing rental costs.
The company’s ailing financial health has also hurt the performance of its operator Sparc Group – a joint venture that includes the companies that bought Forever 21. This includes Authentic Brands and shopping center conglomerate Simon Property Group.
Shein has also been included in this joint venture under a deal reached last year, which would see Shein acquire a third of Sparc.
Later in August 2023, Shein partnered with Forever 21 based on executives’ “if you can’t beat them, join them” mindset.
Simon CEO David Simon was the mastermind behind this plan, according to Jamie Salter, CEO of Authentic Brands.
A line of shoppers will get their first chance to shop on the opening day of fast fashion e-commerce giant Shein, which hosted a pop-up at Forever 21 at Ontario Mills Mall in Ontario on October 19, 2023.
Temu is another China-based e-commerce retailer that sells clothing at ultra-cheap prices. It, along with Shein, has emerged as Forever 21’s main competitors
Pictured: Forever 21’s flagship location in Times Square, Manhattan. It covers 90,000 square meters and has four floors
Jamie Salter, CEO of Authentic Brands, pictured, said the Forever 21 acquisition was “probably the biggest mistake” of his career. He added that he did not see Shein and Temu as serious competitors and that by the time he recognized the threat they posed, the damage had already been done.
As part of the joint deal, Shein agreed to create and distribute a line of co-branded Forever 21 clothing that would be sold primarily on Shein’s website.
In return, Forever 21 began hosting Shein pop-up stores and accepting returns from the China-affiliated fast-fashion retailer. This has reportedly led to increased traffic to Forever 21 stores.
Shein’s pop-ups, which have toured throughout the US, are usually set up over the course of a weekend and sometimes attract thousands of customers.
Given the success of this business model, some industry experts believe the previously online-only retailer could eventually acquire Forever 21’s stores.
Be that as it may, bringing Shein on board isn’t the lifeline that Salter could have saved or Simon had hoped it would be.
At a conference in January, Salter said the Forever 21 acquisition was “probably the biggest mistake” of his career, also noting that he initially did not see Shein and Temu as the serious competitors they were sure to become.