Forever 21 prepares for potential bankruptcy filing

Forever 21, the US-based fashion giant, is poised for a potential bankruptcy filing after negotiations with potential lenders for additional financing failed.

Last week, the company brought in a team of advisers to help restructure debt and re-evaluate its 815-store portfolio across North and South America, Europe and Asia.

In the UK, Forever 21 has only handful of stores, including a flagship on London’s Oxford Street.

A Chapter 11 bankruptcy filing would enable the retailer, which was founded by husband-and-wife team Jin Sook and Do Won Chang in 1984, to close some of its underperforming stores and recapitalise the business.

However the potential of a last-minute refinancing deal has not been ruled out.

The retailer is one of the largest occupiers of malls in the US and any closures would hit the retail property players hard.

Steve Miley, senior market analyst at www.asktraders.com commented: "Earlier in the year the company officials also approached its landlords to consider taking a stake in the retailer, an unsuccessful movement that was made without the consent of the co-founder Do Won Chang.

"The ripple effect of the bankruptcy filling will touch Simon Property Group Ltd which counts Forever 21 as its sixth-largest tenant excluding department stores, with 99 outlets rented to the retailer in the US.

"The bankruptcy filing would help the company to continue closing unprofitable stores and recapitalise the business which could lead to the survival of the brand. This process will test the consumer loyalty, with Forever 21 having to implement a strategy aiming at increasing the footfall in the stores that will remain opened and streamline the online operation. At this point it is not clear how the European operation is going to be affected.

"This is the last example of the structural change affecting the retail market that was built on the supermarket concept of increasing footfall in large stores. The structural shift towards online shopping will create more casualties amongst retailers with large shops that implies large running fixed costs.