Forever 21, the go-to store for American teenagers for decades, is asking landlords to cut its rent by as much as 50 percent in some areas.
The retailer is facing financial difficulties amid stiff competition from up-and-coming players in the fast fashion sector.
It is working to renegotiate the leases for its some 380 US stores as a way to cut costs, CNBC reported. For now it has not appointed special advisors and is not considering a second bankruptcy.
After filing for Chapter 11 bankruptcy in September 2019, it was bought out by two mall operators and Authentic Brands in an $81 million deal.
At its peak in 2015, Forever 21 was worth $6 billion, making its married South Korean founders Do Won Chang and Jin Sook Chang supremely wealthy.
Forever 21 is renegotiating the leases for its some 380 stores in the US as commercial rents soar across the country
Forever 21 is facing a series of problems that have been plaguing profitability for years.
These include increased competition from physical store rivals as well as online-only upstarts, problems making sure it got its stock levels right and losing touch with what shoppers want.
Shops like H&M and Zara, also common in American malls, used to be Forever 21’s main competition in the fast fashion sector.
All three use a business model that involves rapidly producing trendy, cheap clothing – and selling it fast.
But in recent years, a new category of ultra-fast-fashion brands like Shein and Temu have left Forever 21 in the dust.
They don’t have the massive disadvantage of costly physical locations and can get trendy outfits sold at lightning speed through viral social media posts.
‘As soon as someone goes viral in a new outfit on TikTok, Shein is immediately making it and no regular brand can keep up with that,’ a person familiar with Forever 21’s thinking told CNBC.
‘The speed is almost impossible to compete with. So if you juxtapose any brand that was around 20 years ago to these new, on-demand manufacturing fast-fashion companies … it’s like comparing a mobile phone from 2000 to the newest iPhone. The speed, the quality, everything is just different,’ the person added.
Forever 21 has scaled down since filing for bankruptcy in 2019 when it had over 800 locations globally.
That is something that experts told CNBC is a tell-tale sign that the company expanding much too fast in its growth phase during the early 2010s.
The crown jewel of the brand’s frenzied scaling up was its 90,000 square foot flagship store in Times Square, which opened in 2010. It’s unclear if this location will be affected as the company continues to weigh its options going forward.
After its bankruptcy, Forever 21 tried to stop the bleeding by closing hundreds of stores, but its still massive brick-and-mortar footprint is being hammering by soaring rent costs.
The company’s ailing financial health has also hurt the performance of its operator Sparc Group – a joint venture that includes the companies that bought Forever 21. This includes Authentic Brands and mall conglomerate Simon Property Group.
Shein is also included in this joint venture under a deal reached last year where Shein would acquire a third of Sparc.
Later in August 2023, Shein partnered with Forever 21 based on ‘if you can’t beat them, join them’ thinking by executives.
Simon CEO David Simon was the mastermind behind this plan, according to Authentic Brands CEO Jamie Salter.
A line of shoppers get the first opportunity to shop on the opening day of fast fashion e-commerce giant Shein, which hosted a pop up inside Forever 21 at the Ontario Mills Mall in Ontario on October 19, 2023
Temu is another Chinese-based e-commerce retailer that sells clothes at ultra-cheap prices. It, along with Shein, have emerged as Forever 21’s main competitors
Pictured: Forever 21’s flagship location in Times Square, Manhattan. It spans 90,000 square feet and has four floors
Authentic Brands CEO Jamie Salter, pictured, said that acquiring Forever 21 was ‘probably the biggest mistake’ of his career. He added that he failed to see Shein and Temu as serious competitors and by the time he recognized the threat they posed, the damage was already done
As part of the joint deal, Shein agreed to make and distribute a line of co-branded Forever 21 apparel that would primarily be sold on the Shein website.
In return, Forever 21 began hosting Shein pop-up stores and accepting returns from the Chinese-linked fast-fashion dealer. This has reportely driven more foot traffic to Forever 21 shops.
Shein’s pop ups, which have toured all over the US, are usually set up over the course of a weekend and sometimes draw thousands of customers.
Given the success of this business model, some industry watchers feel the previously online-only retailer could eventually take over Forever 21’s stores.
Either way, bringing Shein on board hasn’t been the life preserver Salter or Simon hoped it would be.
At a conference in January, Salter said acquiring Forever 21 was ‘probably the biggest mistake’ of his career, also noting that he initially failed to see Shein and Temu as the serious competitors they most certainly became.