Fast-fashion brand Forever 21, once the mall epicenter for affordable jeggings and sequined halter tops, is now battling financial problems which have only been exacerbated by the rise of e-commerce giants like Shein.
Forever 21 is asking a few of its landlords for rent reductions — as much as 50% for a few of its 380 U.S. stores, people conversant in the situation said. to CNBCThe company filed for bankruptcy in 2019 after failing to grow sustainably and rebounded a 12 months later through an acquisition by Authentic Brands Group and landlords Simon Property Group and Brookfield Property Partners, but has no plans to file for bankruptcy again, the people said.
Previously a strong competitor Forever 21, which is distancing itself from mall giants H&M and Zara, is now vulnerable to being swallowed up by the subsequent generation of fast-fashion giants like Shein and Temu, which have made a reputation for themselves by chasing trendy designs and delivering them at lightning speed to their vast Gen Z audiences.
“The speed is hard to keep up with,” one source told CNBC. “So if you compare a brand that was around 20 years ago to these new, on-demand, fast-fashion companies… it’s like comparing a cell phone from 2000 to the latest iPhone. The speed, the quality, everything is just different.”
Ten years ago, it could have been hard to consider that Forever 21 could be in such trouble. The once 900-square-foot store in Los Angeles, called Fashion 21, made $700,000 in sales in its first 12 months in 1985 by targeting price-conscious shoppers. The company grew steadily for a long time, and by 2015, the corporate’s co-founders had together Net price of $5.9 billion with 750 stores within the US But after struggling to operate huge stores and never with the ability to sustain with E-commerce and fashion trendsthe brand stumbled. When it finally filed for bankruptcy, the unique owners lost their billionaire status.
The bad news from Forever 21 follows shortly after that from Shein Filing of an IPO in London earlier this month. The China-based company, valued at around $63 billion, wouldn’t only provide a lift to the fast-growing e-commerce sector but would even be considered one of the largest IPOs in London in recent memory.
Forever 21’s latest owner has already acknowledged that online fast-fashion marketplaces could have a negative impact on the retailer. Authentic Brands CEO Jamie Salter said in January that the consortium’s acquisition of Forever 21 in 2020 was “probably the biggest mistake I’ve made,” partly because he failed to acknowledge the big threat posed by Shein and Temu.
Forever is finally over
But the connection between Forever 21 and Shein is greater than just hostile – the 2 firms are closely intertwined. Shein announced in August that acquired a 3rd of the style ownership group SPARCthe consortium of Authentic Brands and Simon Property, which owns Forever 21. The partnership allowed Shein to host pop-ups at Forever 21 locations and the 2 firms to launch a joint fashion line. In May, Shein announced plans to permit its customers to position orders at over 300 Forever 21 locations through its Partnership with Happy ReturnsThe relationship not only gave Shein greater visibility and increased the brand’s popularity within the US, but additionally breathed latest life into the struggling Forever 21.
“We’ve been partners with Shein for four months: it’s still early days. We’re just together,” Salter said. during a presentation in January. “It was incredible. The pop-ups were a real hit.”
While that relationship seemed mutually helpful earlier this 12 months, the partnership may not last given the mall retailer’s apparent downward trend, says Peter Cohan, associate professor of business management at Babson College.
“The value of this deal for Shein as a one-third owner of the parent company may not be as compelling as it was a few years ago,” he said Assets.
He could imagine Shein essentially letting the choice to proceed its store partnerships with Forever 21 evaporate, especially as the corporate looks to earn money overseas. And as for Forever 21’s future? It could depend upon the funds of Simon Property Group, Cohan argued. The group, which owns several mall-based stores, recently sold shares of below average performance in comparison with competitors and within the last month sold its 10% stake in Authentic Brands for nearly $1.2 billion. However, each groups still have their three way partnership SPARC. SPARC, Authentic Brands, Simon Property, Shein and Forever 21 didn’t immediately reply to AssetsPlease leave a comment.
While Forever 21’s decision to file for bankruptcy a second time will likely depend upon the financial health of its owners, Cohan is nonetheless not optimistic concerning the brand’s future: “It doesn’t sound like the company will be around for very long,” he said.
