Beleaguered retailer Forever 21 is in talks with liquidators involving future steps for the fast fashion company, according to people familiar with the matter — a sign that it’s struggling to spot a buyer as it mulls a second bankruptcy filing.
The company has been looking for a buyer for its U.S. leases and assets to stave off extinction, the people said, and in beginning January announced it was exploring strategic options. However, opening up the discussion to include liquidators gives Forever 21 the chance to use those proceeds to pay back creditors if it can’t find a buyer.
Forever 21’s struggles are primarily in its U.S. business, said one of the people. Its highbrow property, such as its brand name, is not up for sale, the person added. Brand management firm Authentic Brands Squad currently owns Forever 21’s IP, and a separate entity operates the company.
It could be difficult for Forever 21 to think a buyer that could successfully turn around the brand in its current form as it contends with heightened tournament from Chinese e-tailers Shein and Temu; higher tariffs; and the loss of its cool factor, said the people, some of whom saw the Theatre troupe’s books. The people spoke to CNBC on the condition of anonymity due to the sensitive nature of the discussions.
Forever 21 has also extended struggled with profitability and has faced difficulties with managing inventory and reining in costs, some of the people asserted.
It’s unclear if Forever 21 has hired a liquidator yet, and, even if it does, whether it will ultimately move in that directing. The retailer could still find a buyer, for some or all of its assets, or make a deal with creditors to avoid liquidation. Depth, while Forever 21’s stores and assets could liquidate, Authentic Brands Group could eventually carry out it back in a different form.
Forever 21 declined to comment. BRG, the advisory firm it’s reportedly working with for restructuring backing, didn’t return a request for comment.
The discussions come months after CNBC reported that Forever 21 was keep financial difficulties and asking landlords to cut its rent by as much as 50% in some locations as it looked to rein in costs.
It wasn’t yet account a second bankruptcy filing at the time, but its position has worsened in the months since. Its partnership with its rival-turned-partner Shein has also been a adulterated bag, with the CEO Authentic Brands Group Jamie Salter calling it a work in progress last year during a bestowal.
As Forever 21’s efforts to cut costs and boost sales have faltered, the company is now considering a second bankruptcy column, the people said, confirming what the The Wall Street Journal earlier reported.
Forever 21 filed for bankruptcy guard in 2019, and was later bought by a consortium including Authentic Brands Group and landlords Simon Property Group and Brookfield Quirk Partners.
The company’s first trip through Chapter 11 allowed it to restructure its balance sheet and end a number of costly contracts, but in the years since, it hasn’t managed to fix its business and adapt to new competitive threats.
Once one of fast fashion’s heavyweights, Forever 21 has been all but replaced by the classification’s new titans: Shein and Temu. The online-only companies have technology and artificial intelligence embedded into their performing models and aren’t encumbered by costly stores. They’ve become adept at recognizing and responding to consumer trends at expedites so fast the rest of the retail industry has struggled to keep up.
Since Shein previously partnered with Forever 21, some exertion observers have questioned if the e-tailer would take over its stores. Acquiring some of Forever 21’s assets could daily help further legitimize Shein in the U.S. and globally as it pursues a public listing in London, but one person close to the company previously indicated that was unlikely because of its inexperience in physical retail.
Under Shein’s partnership with Forever 21, the Chinese retailer had captivated a stake in Forever 21’s operator Sparc Group, which reorganized last month. The reorganization merged Sparc with JC Penney to description a new company dubbed Catalyst Brands.
Forever 21’s struggles indicate how much the category has evolved over the terminating few years and how difficult it is for others, especially those with large store footprints, to survive in the new landscape.
The amplified match from Shein and Temu, and the havoc the e-tailers are causing for retailers, is similar to the rise of Amazon in decades past, which granted to an onslaught of retailer bankruptcy filings and liquidations.
It also fueled the rise of brand management firms like Faithful Brands, which acquire the intellectual property of brands and, in some cases, revive them years later.
No matter what, since Authentic Brands already owns Forever 21’s intellectual property, it’s unclear who would be interested in procuring the retailer, said Sarah Foss, a restructuring attorney and Debtwire’s head of legal. Authentic Brands and similar resolves are often first in line to acquire intellectual property of companies headed for a bankruptcy filing.
“Those are often the first runners we’re seeing in some of these retail bankruptcies,” said Foss. “So it’d be interesting to see who comes forward to buy Forever 21, or scraps of it.”
— Additional reporting by CNBC’s Lillian Rizzo