After heavily rumored to be soon filing for bankruptcy, fashion retailer, Forever 21, confirmed that the company has already “voluntarily” filed a Chapter 11 Protection under the U.S. Bankruptcy Code in order to for the company to overhaul its global business.
Along with the filing of Chapter 11 bankruptcy, Forever 21 told its customers that it would be closing down some of its stores, including nearly 200 of its stores in the United States. Forever 21 also said that they would also be exiting “most of its international locations in Asia and Europe.” However, it was also noted that the company would remain operational in Mexico and Latin America.
“Today, Forever 21, Inc. voluntarily filed for bankruptcy protection under chapter 11 of the U.S. Bankruptcy Code. Essentially this allows Forever 21 to continue to operate its stores as usual, while the company takes positive steps to reorganize the business so we can return to profitability and refocus on delivering incredible styles and fashion you love for many years to come,” the company told its customers through a letter posted on its website.
“This does NOT mean that we are going out of business – on the contrary, filing for bankruptcy protection is a deliberate and decisive step to put us on a successful track for the future,” the company added.
Furthermore, the fashion retail company said that they are still making the decision on which stores in the U.S. will be closing as it will depend on the “outcome of a continued conversation 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 told their customers.
A Chapter 11 filing would grant Forever 21 protection from the courts as it tries to reorganize the company in order to pay its loans over time. “This chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11,” reads the court website.
Filing for Chapter 11 is an instrumental move for Forever 21 in order to get out of leases and close stores at lower costs. According to Linda Chang, the executive vice president for the company, filing for Chapter 11 is “an important and necessary step to secure the future of our company, which will enable us to reogranize our business and reposition Forever 21.”
The Canada-based fashion retailer company, which was established since 1984, has been struggling with its finances in the last five years. Adding to the problem of the company is the rapidly evolving fashion and trend market and user buying behavior as technology ushers alternative services.
Earlier this month, Japanese news outlets have reported that Forever 21 is packing its bags out of Japan due to the sluggish sales in the region. The retail giant is closing down all their 14 stores across Japan as well as their online operations in the country by the end of October. The company said that the decision to leave the Japenese market was motivated by a series of losses in recent years in the company due to problematic sales.
Forever 21 tried to fix its problems by obtaining at leats $275 million in financing from JPMorgan Chase (JPM), as well as another $75 million in new captial from TPG Sixth Street Partners. The new funding was intended to allow the company to operate “in a business as usual manner” during its restructuring.