A Forever 21 store in London on September 30, 2019.
Alberto Pezzali | NurPhoto | fake images
Forever 21 is asking landlords for a discount on rent as sales of the fast-fashion legacy decline and it struggles to keep up with savvy competitors, CNBC has learned.
The retailer, which has more than 380 stores in the U.S., has asked some landlords to reduce their rent by up to 50%, people familiar with the matter told CNBC.
While the company faces financial difficulties, it has yet to hire advisors and is not considering a second bankruptcy protection filing, the people said. It is working to restructure its numerous leases so it can cut costs, they said.
Forever 21 faces a number of problems that have long plagued its business. It operates in the increasingly crowded fast fashion market, the people said. They also added that the retailer is struggling to manage inventory and understand and respond to its consumers.
The retailer's struggles come after it filed for bankruptcy in 2019 and was later bought by a consortium that included brand management company Authentic Brands Group and owners Simon Property Group and Brookfield Property Partners.
When the company filed for bankruptcy protection, it had more than 800 locations worldwide.
Like many retailers, Forever 21's huge store presence weighed on its balance sheet when it first filed for bankruptcy. The retailer had expanded too quickly during its growth phase, preventing it from investing in its supply chain and responding quickly to changing trends.
Closing hundreds of stores after filing for bankruptcy has not solved its problems.
Forever 21's financial position has also hurt the performance of its operator Sparc Group, the joint venture that includes Authentic, Simon and, since last summer, the China-linked fast fashion giant Shein. Sparc runs the operations of Forever 21, as well as several other formerly bankrupt retailers, including Aeropostale, Brooks Brothers and Lucky Brand.
Sparc declined to comment to CNBC. Simon did not respond to a request for comment.
Always weighs on Sparc
Sparc has been examining its budgets and grappling with its own financial problems, people familiar with the matter said.
Many of Sparc's challenges come from the difficulty of merging numerous legacy brands and trying to centralize their teams, technology, marketing, e-commerce, sourcing and supply chains, one of the people said. She also faces the issue of managing brands that have long operated primarily in shopping malls.
Expensive leases for stores that perform poorly relative to their size can often strain retailers' balance sheets and drain cash.
Forever 21 has consistently paid its suppliers late over the past year, according to data from Creditsafe, a business intelligence platform that analyzes companies' financial, legal and compliance risks. The data shows that Forever 21's payment patterns to suppliers have fluctuated, with some invoices being more than 70 days late at the end of 2023, according to Creditsafe.
Many businesses, including many that are in good health, leave invoices unpaid for weeks or months, but late payments can also indicate larger financial problems. The industry average ranged between 12 and 13 days of arrears over the past 12 months, Creditsafe spokesperson Ragini Bhalla said.
Run to compete
In the past, Forever 21's main rivals included H&M and Zara. Today, its biggest enemies are ultra-fast fashion retailers like Shein and Temu.
“It's almost impossible to compete with speed. So if you juxtapose any brand that was around 20 years ago with these new fast fashion companies that manufacture on demand… it's like comparing a mobile phone from the year 2000 with the newest iPhone. The speed “The quality, everything is different,” said one of the people. “As soon as someone goes viral with a new outfit on TikTok, Shein does it immediately and no normal brand can keep up.”
Shoppers walk past advertisements on the opening day of fast fashion e-commerce giant Shein, which hosted a pop-up inside Forever 21 at the Ontario Mills Mall in Ontario on October 19, 2023.
Allen J. Schaben | Los Angeles Times | fake images
At the ICR conference in January, Authentic Brands CEO Jamie Salter said acquiring Forever 21 was “probably the biggest mistake” of his career, adding that he was also wrong to not recognize the competitive threat previously posed by Shein and Temu.
He recalled a conversation he had with Simon CEO David Simon, who asked Salter why he wanted to partner with Shein.
“I said, 'David, it's the right decision, we can't beat them. Their supply chain is too good. They know what's going on. They've figured it out. We need to partner with them,'” Salter said. “So I was the brave one who said, 'Let's partner with these guys.'”
As part of the two retailers' partnership, Shein will design, manufacture and distribute a co-branded Forever 21 line of clothing and accessories that will be sold primarily on Shein's website. Forever 21 has also hosted Shein pop-up stores and has begun accepting Shein returns, which has brought positive foot traffic to Forever 21 stores, one of the people said.
The two originally came together last August, and under the terms of the deal, Shein acquired about a third of Sparc, while Sparc acquired a minority stake in Shein.
Given the concerns Forever 21 is having with its leases and the success of Shein's pop-up stores, some industry observers questioned whether the digital giant could soon take over Forever 21's stores. However, one of the people said That's unlikely because the retailer lacks physical retail experience and its business model involves small-batch production and constantly changing inventory based on trends.
