Forever 21 Could File For Bankruptcy, Store Closures Expected

Fast-fashion retailer Forever 21, famous for its low prices and trendy goods, is on the brink of seeking refuge in bankruptcy protection.

The Los Angeles-based fashion chain founded by South Korean immigrants 35 years ago has admitted its effort to restructure its massive debt has stalled. Forever 21 has held unssuccessful talks for additional financing and is working with a team of advisers to restructure its debt, whose amount hasn’t been revealed.

The company’s woes spring from its large retail presence worldwide. It operates more than 800 stores (500 in the U.S.) and many of these are located in malls which fewer shoppers are frequenting.

Analysts say Forever 21 will have to shed many of these stores to stay afloat and stanch its financial bleeding. By doing so, the embattled retailer will follow in the footsteps of Barneys and Mattress Firm, both of which filed for bankruptcy protection to downsize their store count while rebuilding their businesses.

Forever 21 has been exploring restructuring options to boost its faltering liquidity being hammered by mounting costs. Reports say these efforts have proved unavailing, making bankruptcy a more likely outcome.

Forever 21 is looking at the idea of raising a so-called debtor-in-possession loan to fund a potential bankruptcy. Should Forever 21 file a Chapter 11, it will look to emerge with a much reduced number of stores to ease pressure on its finances.

There still seems to be a window to strike a last-minute deal that keeps Forever 21 out of bankruptcy. But the insistence of co-founder Do Won Chang in maintaining a controlling stake in the firm might crimp its fund raising options.

Forever 21’s plight has drawn sympathetic attention from Simon Property Group and Brookfield Property Partners, whose properties house many of Forever 21’s stores.

Simon’s houses 99 Forever 21 outlets. The retailer is Simon’s seventh-largest in-line tenant in terms of how much rent it pays. In July, when Forever 21’s struggles became critical, Simon’s CEO David Simon said he’d consider infusing more capital into distressed retailers to guarantee keeping stores open.

Simon was apparently referring to Forever 21 but didn’t mention names. His firm helped buy teen apparel retailer Aeropostale out of bankruptcy court three years ago.

It’s also been reported a number of Forever 21 executives have asked Simon and its other biggest landlords to consider taking a stake in the retailer, but without Chang’s approval.