According to Bloomberg news, Forever 21 has applied for bankruptcy protection under Chapter 11 of the bankruptcy law, and the founder and his children will continue to operate this fast fashion brand. So why did Forever21 file for bankruptcy and exit China?
It is worth noting that according to Chapter 11 of the U.S. bankruptcy law, the company can temporarily exempt from meeting the requirements of creditors, continue normal operation and restructure its debts under the protection of the court. According to the documents submitted in Chapter 11, Forever 21 will continue to operate and develop a plan to repay debts and reverse the business. This means that Forever 21 has another hard battle to fight.
Linda Chang, executive vice president of Forever 21, said in an interview with the New York Times: "we hope to simplify some things through this process so that we can do what we are best at again."
In addition, the problem of insufficient funds that has plagued Forever 21 has been alleviated. Forever21 said that it had obtained US $275 million financing from the loan institutions represented by JPMorgan Chase (117.72,0.69, 0.59%) and US $75 million from TPG Sixth Street partners and its affiliated funds.
Meanwhile, the chief restructuring officer of Forever 21 said that in September, Forever 21 did not pay store rent to retain cash flow, and will close 178 stores thereafter.
In fact, since March this year, the operation of Forever 21 has been poor, the pace of shrinking multinational stores is accelerating, and some underperforming markets have even been directly abandoned. In May this year, after closing stores in some major cities, such as Beijing, Tianjin, Hangzhou, Chongqing, etc., Forever 21 completely withdrew from the Chinese market; At the end of October, Forever 21 will close 14 stores in Japan and completely withdraw from the Japanese market.
Previously, the reporter had analyzed that the impact of e-commerce, the drag of heavy assets, acclimatization, suspected plagiarism, and the change of shopping habits and consumption tendencies of young consumers inevitably put Forever21, which once popularized and led the fast fashion trend, into trouble.
This dilemma is not just for Forever 21. According to a report released by consulting firm BDO USA LLP, retailers closed more stores from January to June this year, more than 7000 more than in 2018. According to BDO data, in the first half of 2019, 14 retailers with at least 20 stores filed for bankruptcy, including payless, Gymboree and Charlotte Russe holdings Corp. since then, several other retailers (including a & lsquo; GACI LLC and Avenue stores LLC) filed for bankruptcy. The bankruptcy of payless, Gymboree and Charlotte Russe alone closed about 3700 stores.
In addition, Forever21's misjudgment of the market is also one of the important factors. Chang also told the New York Times: "in less than six years, we expanded from seven countries to 47 countries, and did not expect the rapid change of the retail industry." In 2016, Forever 21 was still expanding, and ASOs, represented by highly data-based peers, has risen.
Can the shrinking Forever 21 continue to tell the story of fast fashion?