The retail giant Forever 21 has filed for Chapter 11 bankruptcy last Sunday. The company said it will be filing a motion to close up to 178 stores in the United States. It currently has about 815 stores worldwide.
Forever 21 has become the latest retailer to go through bankruptcy. Over the past year, several retailers have been forced to close its stores due to the dominance of online shopping. This has affected the foot traffic to brick-and-mortar stores and malls. High levels of debt and rental costs have also affected traditional retailers.
Founded in 1984 in Los Angeles by South Korean Do Won Chang and his wife, Jin Sook, Forever 21 has been selling stylish yet inexpensive clothes to young girls and women.
The company was able to perfect a fast-fashion model that drew customers in. Compared to single brand or department store offerings, Forever 21 as able to update its product selection more frequently.
In a letter addressed its customers, Forever 21 said that “the decisions as to which domestic stores will be closing are ongoing, pending the outcome of continued conversations with landlords.”
“We do however expect a significant number of these stores will remain open and operate as usual, and we do not expect to exit any major markets in the U.S.,” the company added.
Forever 21 is also planning on exiting from the Asian and European markets. It will continue with its operations in Latin America and Mexico.
According to the executive vice president of the company, Linda Chang, Forever 21’s filing for Chapter 11 is “an important and necessary step to secure the future of our Company, which will enable us to reorganize our business and reposition Forever 21.”
Just last week, Forever 21’s last Hong Kong store located in Mongkok closed. The Mongkok store opened in 2016.
Forever 21 first came to Hong Kong in 2011. It opened a 50,000 square flagship store in Causeway Bay but this was replaced by a Victoria’s Secret store two years ago.
“Forever 21 has been under pressure in recent years facing fierce competition from online, while the current dire situation in the city’s retail sector has speeded up its closure,” said the senior director and head of retail services at Knight Frank, Helen Mak.
Forever 21 will also be pulling out of Japan. The 14 Forever 21 stores in the country and its online shop will be closing by the end of October. This is due to the increasing competition with other apparel retailers in Japan.
According to Coresight Research, more retailers in the United States have closed this year than in 2018. In 2019, there have been more than 8,200 store closings. It has already exceeded the total number of store shutdowns of 5,589 last year.
By the end of the year, Coresight is predicting that there will be more retail closures. The number could go as high as 12,000 stores.
Retailers like American Apparel, Delia’s, and Wet Seal not only closed their stores but also filed for bankruptcy. Just this year, Charlotte Russe also filed for bankruptcy.
“Retailers relying on debt to finance their growth have always been particularly susceptible to slowdowns,” said the lead partner in the global consumer and retail practice of retail consulting firm A.T. Kearney, Greg Portell.