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Huge Mall Retailer Confirms Chapter 11 Bankruptcy Liquidation
The past few years have been brutal for retailers, particularly those based in malls.
The pandemic caused a shift in consumer patterns, forcing people to shop online instead of in stores. Coupled with a broad economic slump, the changes took a lot of business away from already struggling retailers.
Once the economy recovered from the events of 2020, stimulus policies fueled a years-long period of rampant inflation. Prices began to soar in 2021, and inflation peaked in mid-2022, driving consumers to their breaking point.
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Inflation has cooled over the past couple of years but remains elevated. And this time around, Americans don't have stimulus checks to fall back on.
For this reason, a lot of people are making tough budgetary choices. Many are cutting back on spending to conserve cash and avoid borrowing at a time when interest rates are elevated. And it's created a perfect storm of events that some retailers just aren't equipped to survive.
Major mall retailer files for bankruptcy, plans liquidation.Image source: Getty Images
Iconic mall retailer gets battered
Shopping malls were struggling even before the events of the pandemic. But in 2020, consumers were forced to stay away from malls due to health concerns.
And to this day many have hesitated to return to malls — not because they're worried about getting sick but because they've discovered better options.
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Consumers were forced to do much of their clothing shopping online during the pandemic. But once they got used to that convenience, it was a hard thing to give up even once stores reopened.
Of course, some retailers fared better than others in the wake of the pandemic and the massive shift to online shopping. But Forever 21 had seen its share of struggles before the pandemic. The iconic mall mainstay filed for Chapter 11 bankruptcy in 2019.
And diminishing mall traffic and stiff competition from online retailers took a toll on Forever 21. Earlier in March, it said it would dismiss nearly 700 employees. And it planned to close stores as well.
Forever 21 files for bankruptcy, plans liquidation
Younger consumers who may have once been inclined to take a YOLO-inspired approach to shopping have changed their tune in recent years in the wake of inflation-related concerns. Wells Fargo reported earlier this year that 82% of Gen Z adults were cutting back on spending, as were 60% of teens.
It’s this exact You Only Live Once audience that Forever 21 could not afford to lose.
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On March 16 Forever 21 filed for Chapter 11 bankruptcy for the second time in six years. Filing in U.S. Bankruptcy Court in Wilmington, Del., the company cited competition from foreign brands as a big driver.
"While we have evaluated all options to best position the company for the future, we have been unable to find a sustainable path forward, given competition from foreign fast-fashion companies," Chief Financial Officer Brad Sell in a statement.
The company is planning an "orderly wind down of operations," including a liquidation of its roughly 350 U.S. stores.
The company's trademark and intellectual property, which are held by Authentic Brands Group, may live on in a different form.
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Forever 21 has assets in the range of $100 million to $500 million and liabilities in the $1 billion to $5 billion range, according to its bankruptcy filing.
Forever 21's U.S. stores and website will remain open in the near term, as will its international e-commerce sites. The company operates more than 540 locations globally and online.
Fans of the store should be on the lookout for liquidation sales in the coming weeks. Given Forever 21’s already low price points, even cash-strapped customers may find deals they can comfortably swing.
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