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Forever 21 Seeks Rent Relief Amid Financial Struggles

Forever 21 Seeks Rent Relief Amid Financial Struggles

Facing a decline in sales and stiff competition, Forever 21 is requesting rent reductions from landlords as it grapples with financial difficulties. The fast-fashion retailer, which operates over 380 stores in the U.S., has approached some landlords to cut rent by up to 50%.

Despite its financial woes, the company has not yet appointed officials nor is it considering another bankruptcy filing, according to sources. Efforts are underway to restructure various contracts to lower costs.

Forever 21’s challenges are numerous, as it contends with a saturated market and struggles with inventory management and customer responsiveness. The company previously filed for bankruptcy protection in 2019, after which it was acquired by a consortium including Authentic Brands Group, Simon Property Group, and Brookfield Property Partners.

At the time of its bankruptcy filing, Forever 21 had more than 800 locations worldwide. Its rapid expansion left it unable to efficiently manage its supply chain and adapt to shifting trends, which contributed to its financial troubles.

Even after closing hundreds of stores post-bankruptcy, the retailer’s issues persist. Forever 21’s financial health has also impacted Sparc Group, the joint venture managing its operations along with those of other formerly bankrupt retailers like Aeropostale, Brooks Brothers, and Lucky Brand. Sparc is a collaboration between Authentic, Simon, and the fast-fashion giant Shein.

Sparc has been reviewing its budgets and dealing with financial challenges, partly due to the complexities of integrating multiple legacy brands and centralizing their operations. The high cost of leases for underperforming stores further strains the company’s finances.

Data from Creditsafe, a business intelligence platform, indicates that Forever 21 has been consistently late in paying its vendors over the past year, with some bills going unpaid for more than 70 days. While late payments are not uncommon, they can signal deeper financial issues.

In the competitive landscape, Forever 21’s rivals have shifted from H&M and Zara to ultra-fast-fashion retailers like Shein and Temu. The speed and efficiency of these newer competitors have proven difficult to match. “The speed is almost impossible to compete with,” said one source, highlighting the rapid response of companies like Shein to fashion trends.

At the ICR conference in January, Authentic Brands CEO Jamie Salter admitted that acquiring Forever 21 was “probably the biggest mistake” of his career, acknowledging the underestimated threat of Shein and Temu. He recounted a conversation with Simon’s CEO David Simon about partnering with Shein. “I said, ‘David, it’s the right decision, we cannot beat them. Their supply chain is too good.'”

As part of their partnership, Shein will design, manufacture, and distribute a line of co-branded Forever 21 apparel and accessories primarily sold on Shein’s website. This collaboration has already boosted foot traffic to Forever 21 stores through Shein pop-up shops and return services.

Despite speculation about Shein potentially taking over Forever 21’s physical stores, industry observers believe this is unlikely due to Shein’s lack of experience with physical retail and its business model focused on small-batch production and rapidly changing inventory.

Forever 21 continues to navigate a challenging market environment, seeking ways to reduce costs and remain competitive amidst financial and operational hurdles.