Forever 21 is asking landlords for a break on rent as the legacy fast-fashion player\u2019s sales decline and it struggles to keep up with savvier competitors, CNBC has learned.<\/p>\n
The retailer, which has more than 380 stores in the U.S., has asked some landlords to cut its rent by as much as 50%, people familiar with the matter told CNBC. <\/p>\n
While the company is facing financial difficulties, it has yet to hire advisors and isn\u2019t considering a second bankruptcy protection filing, the people said. It\u2019s working to restructure its many leases so it can cut costs, they said. <\/p>\n
Forever 21 faces a range of issues that have long plagued its business. It operates in the increasingly saturated fast-fashion market, the people said. They also added that the retailer struggles to manage inventory and understand and respond to its consumers.<\/p>\n
The retailer\u2019s struggles come after it filed for bankruptcy protection in 2019 and was later bought by a consortium including brand management company Authentic Brands Group and landlords Simon Property Group and Brookfield Property Partners.<\/p>\n
When the company sought bankruptcy protection, it had more than 800 locations globally.<\/p>\n
Similar to many retailers, Forever 21\u2032s massive store footprint weighed on its balance sheet when it first filed for bankruptcy protection. The retailer had expanded too quickly during its growth phase, leaving it unable to invest in its supply chain and rapidly respond to changing trends. <\/p>\n
Closing hundreds of stores after filing for bankruptcy protection has not resolved its issues.<\/p>\n
Forever 21\u2032s financial position has also hurt the performance of its operator Sparc Group \u2014 the joint venture that includes Authentic, Simon and as of last summer, Chinese-linked fast-fashion behemoth Shein. Sparc runs Forever 21\u2032s operations, as well as several other formerly bankrupt retailers, including Aeropostale, Brooks Brothers and Lucky Brand. <\/p>\n
Sparc declined to comment to CNBC. Simon didn\u2019t return a request for comment.<\/p>\n
Sparc has been scrutinizing its budgets and contending with its own financial struggles, people familiar with the matter said. <\/p>\n
Many of Sparc\u2019s challenges come from the difficulty of merging numerous legacy brands and attempting to centralize their teams, technology, marketing, e-commerce, sourcing and supply chains, one of the people said. It\u2019s also contended with the issue of running brands that have long operated primarily in malls.<\/p>\n
Expensive leases for stores that perform poorly relative to their size can often weigh down retailers\u2019 balance sheets and drain cash.<\/p>\n
Forever 21 has consistently paid its vendors late over the last year, according to data from Creditsafe, a business intelligence platform that analyzes companies\u2019 financial, legal and compliance risks. The data shows Forever 21\u2032s payment patterns to vendors have fluctuated, with some bills going more than 70 days past due in late 2023, according to Creditsafe.<\/p>\n
Plenty of companies, including many that are healthy, leave bills unpaid for weeks or months, but late payments can also signal larger financial troubles. The industry average hovered between 12 and 13 days past due for the last 12 months, said Creditsafe spokesperson Ragini Bhalla.<\/p>\n
In the past, Forever 21\u2032s top rivals included H&M and Zara. These days, its biggest foes are ultra-fast-fashion retailers like Shein and Temu. <\/p>\n
\u201cThe speed is almost impossible to compete with. So if you juxtapose any brand that was around 20 years ago to these new, on-demand manufacturing fast-fashion companies \u2026 it\u2019s like comparing a mobile phone from 2000 to the newest iPhone. The speed, the quality, everything is just different,\u201d one of the people said. \u201cAs soon as someone goes viral in a new outfit on TikTok, Shein is immediately making it and no regular brand can keep up with that.\u201d <\/p>\n
At the ICR conference in January, Authentic Brands CEO Jamie Salter said acquiring Forever 21 was \u201cprobably the biggest mistake\u201d of his career, adding he also erred when he failed to recognize the competitive threat posed by Shein and Temu earlier. <\/p>\n
He recalled a conversation he had with Simon\u2019s CEO David Simon, who asked Salter why he wanted to partner with Shein. <\/p>\n
\u201cI said, \u2018David, it\u2019s the right decision, we cannot beat them. Their supply chain is too good. They know what\u2019s going on. They\u2019ve figured this out. We need to partner with them,\u2019\u201d Salter said. \u201cSo I was the brave one that said, \u2018Let\u2019s go partner with these guys.\u2019\u201d<\/p>\n
As part of the two retailers\u2019 partnership, Shein will design, manufacture and distribute a line of co-branded Forever 21 apparel and accessories that will be sold primarily on Shein\u2019s website. Forever 21 has also hosted Shein pop-up stores and begun accepting Shein returns, both of which have driven positive foot traffic to Forever 21\u2032s shops, one of the people said. <\/p>\n
The two originally linked up last August and under the terms of the agreement, Shein acquired about one-third of Sparc while Sparc took a minority stake in Shein. <\/p>\n
Given the concerns that Forever 21 is having with its leases, and the success of Shein\u2019s pop-up shops, some industry observers questioned whether the digital giant could soon take over Forever 21\u2032s stores. However, one of the people said that\u2019s unlikely because the retailer lacks experience in physical retail and its business model involves small-batch production and an inventory that constantly shifts based on trends.<\/p>\n<\/p>\n
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