Why Forever 21 Was Forced to File for Bankruptcy2020-06-15T11:51:54+00:00

When most people think of affordable clothing chains or “fast fashion,” Forever 21 is one of the first brands to come to mind. In fact, Forever 21 helped popularize the very concept of fast fashion for the United States and around the world. However, a few months ago in September 2019, the California retailer confirmed that they would be filing for Chapter 11 bankruptcy.

The bankruptcy decision was caused by two main factors: 1) shifting shopping trends and attitudes among consumers, and 2) complications caused by Forever 21’s rapid expansion.

The Aftereffects of Bankruptcy

Forever 21 will be closing 350 stores around the world and simplifying their product offerings. According to The New York Times, the company’s executive vice president Linda Chang said that these decisions were focused on simplification so that “we can get back to doing what we do best.”

Ms. Chang said that the company will focus on continuing to target their most loyal consumer group: shoppers ages 25-40. And while the company still sees promise in areas like men’s and girls’ merchandise, they are planning to pare down other areas like home décor, electronics, and cosmetics, reports The New York Times.

Straying from the original business model that made them successful may have been part of their downfall. Another detriment was likely expanding at lightning speed, banking on the bet that consumer trends would continue the same as they had been when the brand was growing. Forever 21 expanded from 7 countries to 47 countries in less than six years, a pace that brings “a lot of complexity,” according to Ms. Chang.

Changing Shopping Trends

But perhaps even more than Forever 21’s fast-paced expansion and brand complexity, it was changing shopping trends among consumers that forced the mega-chain to cut back. According to The New York Times, shifting consumer trends include:

  • Less foot traffic in shopping malls
  • More online shopping
  • Waning interest in fast fashion as consumers are increasingly more aware and concerned about ethical and sustainable purchase options. More and more shoppers are looking to support company values such as fair wages, sweatshop-free manufacturing, eco-friendly materials, planet-friendly manufacturing and distribution, and locally-produced goods – values not usually associated with fast fashion and mega- chains whose selling point is ever-changing inventory and jaw-dropping low prices.
  • Increased backlash on large retailers after incidents such as the Rana Plaza garment factory tragedy that killed more than 1,100 garment workers in Bangladesh.

Surviving After Bankruptcy

If they make the right moves, Forever 21 might just be able to continue to thrive even after filing for bankruptcy. According to The Washington Post, Forever 21 has received $350 million for restructuring, which it will use to sustain normal business as it tries to “right size its store base and return to the basics that allowed the company to thrive and grow,” in the retail company’s words.

But according to analysts, said the retailer needs to take broader action if it wants to win back consumers and continue to operate successfully.“Slimming down the operation and reducing costs is only one part of the battle,” says Neil Saunders, managing director of GlobalData Retail. “The long-term survival of Forever 21 relies on the chain creating a sustainable and differentiated brand. This is something that will be very difficult to accomplish in a crowded and competitive sector.”

What is Chapter 11 Bankruptcy?

Chapter 11 is an option for businesses who wish to restructure and continue operating. Many businesses in today’s economy find themselves weighed down by debt that can make it impossible to move forward with normal operations. With Chapter 11 Bankruptcy, a debtor can eliminate certain debt obligations, restructure payment plans to creditors, and work towards profitability, all while continuing to operate. Chapter 11 Bankruptcy is appropriate for partnerships, limited liability companies, corporations, and even individuals who may not be eligible for Chapter 13 Bankruptcy. Companies who file for Chapter 11, may seek the court’s permission to sell some assets and pay down debt. The main positive feature of Chapter 11 Bankruptcy is that it allows businesses to remain in operation. Chapter 11 Bankruptcy allows changes in contractual obligations that can make the company profitable again, and it can also afford businesses the opportunity to seek out more favorable loans to remain in operation.

Are you a business owner or individual looking for a way to utilize Chapter 11 bankruptcy? Let Stuart M. Nachbar, P.C. help you navigate your way through the complexities of bankruptcy and on to a second chance at success! Call (973) 567 0954 or send a message online.

 

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