Forever 21 has filed for bankruptcy protection for the second time in six years, citing fierce competition from online fast-fashion giants Shein and Temu as a major factor for its financial struggles.
The retailer’s operating company is set to shut down all US operations, with liquidation sales already underway at more than 350 locations. The company said it remains open to potential buyers willing to acquire its inventory and keep the stores running, according to court filings.
Efforts to secure a buyer over the past several months have been unsuccessful. Forever 21 reached out to over 200 potential investors, with 30 signing confidentiality agreements, but no viable deal emerged.
The company had been engaged in talks with liquidators and faced significant challenges in attracting a buyer willing to sustain the business, according to CNBC.
The company’s second bankruptcy follows a tumultuous period.
After emerging from its first filing, Forever 21 faced economic turbulence due to the COVID-19 pandemic, inflationary pressures and increased competition from newcomers Shein and Temu.
In court filings, Stephen Coulombe, co-chief restructuring officer of the company, attributed some of its financial troubles to Shein and Temu’s ability to leverage the “de minimis exemption.”
The trade law loophole allows imports valued under $800 to enter the US duty-free, a practice Coulombe claims put Forever 21 at a competitive disadvantage.
“Certain non-US online retailers that compete with the Debtors, such as Temu and Shein, have taken advantage of this exemption and, therefore, have been able to pass significant savings onto consumers,” Coulombe stated in court documents.
“Consequently, retailers that must pay duties and tariffs to purchase product for their stores and warehouses in the United States, such as the Company, have been undercut.”
Despite repeated calls from US companies and industry groups to amend the exemption and create a fairer marketplace, no changes have been made to US trade laws, Coulombe noted.
President Donald Trump has recently expressed intentions to eliminate the loophole.
Forever 21’s operator, Sparc Group, sought to counter Shein’s influence by forming a partnership with the company in 2023.
However, the collaboration did not generate enough revenue to offset financial losses or lead to policy changes regarding the de minimis exemption, Coulombe added.
“The ability for non-US retailers to sell their products at drastically lower prices to US consumers has significantly impacted the Company’s ability to retain its traditional core customer base,” he explained.
Despite the liquidation of its US operations, Forever 21’s brand is expected to live on.
Its international stores and online presence will continue, and the intellectual property owned by Authentic Brands Group (ABG) is not part of the bankruptcy proceedings.
“We are receiving lots of interest from strong brand operators and digital experts who share our vision and are ready to take the brand to the next level,” said Jarrod Weber, Global President of Lifestyle at ABG.
Forever 21 previously showed signs of recovery after its first bankruptcy, when it was acquired by a consortium including Authentic Brands Group, Simon Property Group and Brookfield Property Partners.
In 2021, the company generated $2 billion in revenue and $165 million in EBITDA, or earnings before interest, taxes, depreciation and Amortization — a measurement of a company’s profitability before accounting for these costs.
However, rising competition, inflation, and supply chain disruptions led to worsening financial performance.
Over the past three fiscal years, Forever 21 has incurred losses exceeding $400 million, including $150 million in 2024 alone. Projections indicate an additional EBITDA loss of $180 million through 2025.
Last year, ABG CEO Jamie Salter admitted at a conference that acquiring Forever 21 was “probably the biggest mistake I’ve made.”
Reports later surfaced that the company sought significant rent reductions from landlords in a bid to cut costs and avoid another bankruptcy filing.
While these efforts resulted in $50 million in savings, they ultimately were not enough to offset mounting losses.
Currently, the retailer owes $1.58 billion across various loans and more than $100 million to multiple clothing manufacturers, primarily based in China and Korea.
Since its founding in 1984, Forever 21 has been a major player in the fast-fashion industry.
At its peak, the brand boasted more than 43,000 employees and generated over $4 billion in annual sales.
