Will Bankruptcy Save Forever 21?

Teen clothing retailer Forever 21 has been preparing for a potential Chapter 11 bankruptcy filing, a new report suggests.  The privately-held fast-fashion stalwart currently has more than 800 stores across 57 countries and seems to think that they can expand their way through this particularly challenging time.  When most retailers have been closing stores or, at the very least, holding back on their expansion efforts, Forever 21 was still adding stores as recently as 2016.  Today every single one of these stores remains open. 

Of course, that might not be the case by this time next year.  While its popular styles and low prices certainly continue to attract young shoppers, Forever 21 is just as prone to the current issues facing all retailers.  As such, filing for bankruptcy could make it easier for the company to break their existing leases and close stores at a lower cost (and potentially faster pace) than without bankruptcy. 

And traditional brick-and-mortar retailers who specialize in the younger demographics—teens and young adults—have struggled more than others over the past several years. Obviously, teens and young adults are far more apt to shop online than other demographics, and with clothing on the internet often being far more affordable than what you might find at brick-and-mortar stores—even the famously cheap Forever 21—it makes sense that this demographic would make the shift. 

Across the retail industry this trend is nothing new.  Retailers in this particular segment (teens and young adults) have been struggling for years, many filing for bankruptcy and closing nearly all of their stores.  Over the last five years alone Wet Seal, Delia’s, and American Apparel—all quite popular among this demographic—all filed bankruptcy in 2016. Fortunately, these companies have managed to keep a few stores open but the trend speaks for itself. 

In recent months, bankruptcy has been a common escape for companies forced to make difficult decisions, just to survive.  Bankruptcy filings—and the associated store closures—have all been attached to big brands like CVS, JCPenney, Walgreens, and Party City.  More importantly, perhaps, some major brands—like Dressbarn, Payless, and ShoeSource—have shuttered their doors forever.