Forever 21 Bankruptcy Update: Did The Retailer Keep Its Failures Within The Family?

Prior to the bankruptcy filing of Forever 21, the company reportedly looked inside the family to help keep it afloat. The retailer has mostly kept its business strategy under wraps even as it exploded globally, adding 200 stores to its portfolio.

According to Bloomberg, the founders of Forever 21 asked their own children for a $10 million loan that was taken from the trusts of their adult daughters in 2015, paying them two percent interest in return.

Now that the company has filed for Chapter 11 bankruptcy protection, both Linda and Esther Chang, the daughters of Forever 21 owners’ Jin Sook and Do Won Chang, are listed as unsecured creditors in court documents, the news outlet said.

For a company that had $4 billion in sales in 2014, the demise seemed to happen quickly as rapid expansion and larger store footprints strained Forever 21’s resources as the retailer reportedly failed to resonate with international consumers in regions such as Asia.

The global store expansion was the pet project of Chang from 2005 to 2015, but by the end of adding the new locations, the company saw its earnings dip a significant 137 percent, court documents said (via Bloomberg). This led to undermining “Forever 21’s ability to nimbly bring inventory to market, and, by extension, hurt its worldwide profitability while distracting the management team,” the company said in its bankruptcy filing.

Not willing to give up, Forever 21 turned to the family to dig it out of its demise, using $10 million from Chang’s own bank account and $5 million from each of his daughters’ trust to breathe new life into the company, court documents said.

That being said, it wasn’t enough to save Forever 21, which after denying speculation that it was indeed headed for bankruptcy, filed for Chapter 11 protection on Sunday.