Teens around the globe may be left without one of today’s most staple clothing stores. Clothing empire Forever 21 is preparing for potential bankruptcy, according to numerous published reports this past August.
Launching from a single storefront in Highland Park, the Los Angeles-based store has more the 800 branches in 57 countries. In spite of the success of this franchise, the news of possible bankruptcy came about after the company was unable to “reach a deal to restructure around $500 million in debt,” according to LA Magazine.
This bankruptcy status could give the brand an opportunity to cut costs and pay off debt to creditors in an attempt to stay afloat. Or, of course, the whole franchise could fall apart.
According to Forbes, last week, Forever 21 brought in a team of advisors to help restructure the debt and re-evaluate its 800 store portfolio of stores in the U.S, Canada, Europe, Japan, Korea and the Philippines. The company also held campaigns in early August to raise additional financing. However, negotiations with potential lenders have failed. As these options fade, filing for bankruptcy is looking more and more likely.
Earlier this summer, popular clothing brand Topshop closed all its U.S. stores after going through a bankruptcy procedure themselves. According to Business Insider in May, “many of the problems that faced Topshop were remarkably similar to the pressures now hitting Forever 21.” Among the concerns, there is a significant rise in competition from newer brands, the decline of in-store retail sales, and the high cost of rent for storefront real estate.
Many retailers have run into trouble due to being bought out by private equity firms. However, Forever 21 is still owned by its founders, Do and Jin Sook Chang. Husband and wife business partners who immigrated from South Korea in 1981 and started their chain three years later with a single 900 square-foot store in LA and only $11,000 in their savings. Forbes has listed the couple as having “a net worth of $1.5 billion, and the privately-held company itself as having annual sales of $3.4 billion and 30,000 employees.”
Although Forever 21 has a significant online presence, National Real Estate Investor estimates that the 35-year-old company’s average store was once bringing in around $135 to $165 in sales-per-square-foot, that number now has likely dropped closer to $100.
As of September 4, more scandal came the company’s way when reports of Ariana Grande suing the clothing chain for using a look-alike model to impersonate her in a new ad campaign came about. The singer filed the lawsuit in “a federal court in California on Monday, Sept. 2. Grande claims the company falsely made it look like she was backing the brand by using imagery from her “Thank U, Next” album and hiring a model that looked just like her to recreate scenes from her “7 rings” music video, according to CBS.
Grande’s lawsuit states that Forever 21 continuously ran the campaign on their website and social media. An ad posted on Feb. 8, which is still active on the company’s Facebook page, shows a clothing collection promoted with a slogan that plays off the lyrics from “7 rings,” without the singer’s endorsement.
CBS stated that “Grande and the rest of her team are seeking at least $10 million in damages for copyright and trademark infringement, false endorsement, and violating her right of publicity.” If the company’s head wasn’t underwater before, it sure is now, having to add an additional $10 million to their debt if Grande is to win her case.
Reports have stated that owner Do Chang has been trying to maintain control of the company in any sort of restructuring, and his desire to do so has limited the company’s ability to find the funds it needs to stay afloat. Endorsers and customers of the franchise can only hope that Forever 21 finds the necessary funds to keep their brand in the malls across the globe.
The company has yet to respond to any news outlet or make a public announcement.