Retail

Fast failure: Forever 21 files for bankruptcy protection

Matthew Elmas /

US fast-fashion retailer Forever 21 has filed for bankruptcy protection and will seek to restructure its entire global operation in a bid to secure its future. 

Almost two years to the day since shuttering its Australian operation, the Los Angeles-based company announced Monday it will close its entire store network in Europe and Asia while winding back its business in North America considerably.

The 35-year-old company, known for helping to popularise fast-fashion retail globally, has been embroiled in a series of controversies involving allegations of worker exploitation and copyright infringement over the two decades.

Its financial difficulties come as retailers around the world grapple with the disruptive effects of online shopping and broader changes in consumer habits, including a growing awareness of the environmental and human consequences of the ‘cheap and cheerful’ retail model.

Other companies such as Toys ‘R’ Us, JC Penney and Sears have also struggled financially in recent years, while in Australia the likes of Roger David, Pumpkin Patch and Surfstitch have all been victims of the global retail reckoning.

Linda Chang, executive vice president of Forever 21 and the daughter of founders Do Won and Jin Sook Chang, said in a statement the bankruptcy filing will enable the company to reorganise its business model.

“This was an important and necessary step to secure the future of our company,” Chang said.

Few details have been disclosed about the nature of Forever 21’s prospective restructure, but the company has bagged a US$275 million ($407 million) loan from existing lenders to finance the changes, alongside $75 million in new capital.

The funds will allow the retailer to continue operating as usual for the time being, the company said.

Forever 21 closed its Australian flagships in 2017 but still operates an e-commerce operation in Australia. A company spokesperson declined to clarify what effect the restructure will have on Australian customers on Monday, saying decisions regarding location closures are ongoing.

The New York Times, which interviewed the company on Sunday evening US time, reported that Forever 21 will cease operations in 40 countries as part of its Chapter 11 filing, closing as many as 350 of its 800 stores globally. Liquidation of affected locations is expected to begin in late-October.

Chang indicated the company will continue to pursue the fast-fashion businses model it is known for, saying she was confident Forever 21 will emerge as a “stronger, more competitive enterprise”.

“We remain committed to delivering the fast fashion trends that our customers have come to expect from Forever 21,” she said.

The Los Angeles Times reported in 2017 that workers manufacturing Forever 21 products were being paid as little as $6 an hour in the United States, a story which followed earlier allegations of unfair labour practices involving the company stretching back almost two decades.

The company has routinely found itself among the lowest-scoring retailers on Baptist World Aid’s ethical fashion report, managing a D- in 2019 after failing supply chain transparency and worker empowerment metrics.

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Matthew Elmas

Matthew is the news editor at SmartCompany. You can contact him at [email protected].

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