Forever 21 Said to Be Preparing for Bankruptcy Filing

Forever 21 Inc. is preparing for a potential bankruptcy filing as the fashion retailer’s cash dwindles and turnaround options fade, according to people with knowledge of the plans. The company has been in talks for additional financing and working with a team of advisers to help it restructure its debt, but negotiations with possible lenders have so far stalled, the people said. Focus has thus shifted toward securing a potential debtor-in-possession loan to take the company into Chapter 11, they said, even as some window remains to strike a last-minute deal that keeps it out of court. A bankruptcy filing would help the company shed unprofitable stores and recapitalize the business.

Total Retail's Take: The retail apparel sector has been particularly hard hit by store closures and bankruptcy filings, and it appears Forever 21 will be adding to the list. Like many other retailers, Forever 21 has too many stores, with the costs of operating those stores weighing down the bottom line. A bankruptcy filing would enable the fast-fashion retailer to clear debt; evaluate its store network, identifying unprofitable locations for closure; and re-allocate budget into e-commerce and other growing areas of the business. While a positive step in the right direction for Forever 21, it would be another challenge for the country's mall owners, which are already dealing with rising vacancy rates. Forever 21 is one of the biggest mall tenants still standing.