Forever 21 may be next in line to be hit by the fast fashion retail crisis

UPDATE: Sunday, September 29th, Forever 21 has filed for Chapter 11 bankruptcy protection, the US federal law that allows companies a restructuring following a serious financial crisis. The American fast fashion company has announced to close 350 stores worldwide, with the majority in Asia and Europe. For the moment, stores will remain open in the United States, Latin America and Mexico.

A few days ago financial software and media company Bloomberg reported that American fast fashion retailer FOREVER 21 is in the process of preparing for a potential bankruptcy filing. 

According to a few anonymous people on the inside with knowledge of the company’s plans, the fast-fashion company has been in search for additional financing and has been in contact with financial advisers to help restructure the brand’s debt. However, “negotiations with possible lenders have so far stalled, and the focus has shifted towards securing a potential debtor-in-possession loan to help take the company into the next chapter”, they explained. 

Filing for bankruptcy would give the company the opportunity to close unprofitable stores and re-capitalize the business, however, it also creates a problem for some of America’s major mall owners, seeing that Forever 21 is one of the biggest malls tenants in the country. According to Yahoo Finance, the brand has over 800 stores across the U.S., Europe, Asia, and Latin America. 

To hear Forever 21 is knocking on death’s door isn’t a shocker. In fact, one has to wonder what in the world took so long - wrote Yahoo Finance Editor-at-large Brian Sozzi. 

The American brand was originally founded 35 years ago by Korean couple Do Won Chang and Jin Sook Chang, and although the brand had its peak in 2014 with a generated revenue $3.8 billion, in the past few years, Forever 21 has become increasingly irrelevant in malls across the world. This being mainly because of the brand’s failure to evolve, while its fast-fashion competitors like Zara, has moved with the trends of the industry and has even recently found innovative ways to be environmentally friendly, Forever 21 has refused to evolve, sticking with its cheaply made and priced merchandise roots. 

First off they lost their way in fashion — they used to be really quick in copying higher end brands. They became over assorted — less impactful on fashion, while quality declined, said longtime retail analyst Janet Kloppenburg. Also the store footprint just kept getting larger and they have some huge 20,000-square-foot stores. 

With global warming on the rise and fashion being labeled as one of the most polluting industries, fast fashion brands are under a lot of pressure to find ways to adapt to a more demanding yet moralistic customer. As we reported earlier this year Swedish brand H&M found itself in a crisis of inventory of $4.4 billion dollars of unsold clothing that it is still trying to dig itself out of. Also with the rise of the internet, Forever 21 has failed in keeping up the pace of their online stores in comparison to everyone else. 

Forever 21 has declined to officially comment on any of these claims, however as stated by Yahoo Finance, there is no way this will end well for the company, "If you are near a Forever 21 — which has failed to evolve — this tsunami of store closings is likely to show up at your doorstep.”