Forever 21 Considering a Bankruptcy Filing

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Apparel retailer Forever 21 is considering a bankruptcy filing as efforts to restructure its debt have run dry, according to CNBC.

The news site is reporting that Forever 21 had been exploring restructuring options to avoid liquidation as its business struggles continue, but those efforts have stalled and a Chapter 11 filing is possible.

It’s still possible that Forever 21 could avoid filing since it has yet to be determined whether it filed a debtor-in-possession loan that would fund a potential bankruptcy.

CNBC said Forever 21’s real estate footprint is particularly large, with more than 815 stores globally. If the company did file for bankruptcy protection the proceedings could free it from undesirable leases.

“The closure of some mall-based retailers is not new and really doesn’t come as a surprise,” said Dave Cesaro, executive director of vertical marketing for Valassis. “Many retailers closing stores or retailers that have already filed for bankruptcy were over leveraged and had lost relevancy.”

Cesaro said some of these retailers are quick to blame the “fickle consumer who is shopping online.”  However, Valassis research shows 60% of consumers still prefer to shop for apparel in malls versus online – this is primarily because of the convenience and on-stop shopping experience that malls provide.

“Additionally, consumers have been conditioned to look for deals,” said Cesaro. “According to recent Valassis research, 92% of consumers frequently utilize coupons.  Consequently, it is in a retailer’s best interest to offer consumers better access to savings such as coupons and deals, shorter lines and better service.”

Cesaro said according to the 2K19 Valassis Coupon Intelligence report, 46% of consumers say they need better solutions to save more money and 39% need better solutions to save more time.  Retailers that are putting consumers first and not just leveraging scale to drive their advantage, are the ones that are winning now will win in the future.

Bloomberg reported that while a bankruptcy filing would shed unprofitable stores and recapitalize the business, it could run afoul of major mall owners such as Simon Property Group Inc. and Brookfield Property Partners LP. Forever 21 is one of the biggest mall tenants still standing in the midst of these bankruptcies and closures.

MCM Musings: This is sadly yet another mall-based retailer staring down the business end of Chapter 11 or even liquidation, as foot traffic continues to stall and the industry overall is rationalizing the number of doors. The Forever 21 format hearkens back to a time when bigger footprints were the norm. For instance, the particular one at my local mall is a multi-level store that entices young shoppers with its bright lights, flashy clothes and pumping music. But as shoppers continue to flee malls, especially the key younger demographics, this flash and sizzle isn’t enough to drive sufficient traffic and chiming cash wraps to make the economics work.

Over the past year alone, the roll call of troubled mall-based retailers either filing for bankruptcy or scaling way back is significant, including among others Charlotte Russe, Payless Shoe Source – a possible repeat filer – Gymboree and GNC.