Business

Forever 21 files for Chapter 11 bankruptcy protection

Shoppers are seen outside Forever 21 store on London's Oxford Street. Image copyright Getty Images

Fashion retailer Forever 21 has filed for Chapter 11 bankruptcy protection in the US.

The company said it plans to "exit most international locations in Asia and Europe" but would continue to operate in Mexico and Latin America.

It expects to close up to 350 stores worldwide, a spokesperson said, including as many as 178 US stores.

Forever 21 sells inexpensive, trendy clothes and accessories, and competes against brands such as Zara and H&M.

But some analysts say the retailer, founded in 1984, has lost its way over the past five years, and fallen out of favour with young US shoppers looking for relatively cheap clothing.

The company has also, like many traditional retailers, struggled against rising competition from online rivals.

Chapter 11 protection postpones a US company's obligations to its creditors, giving it time to reorganise its debts or sell parts of the business.

A Forever 21 spokesperson said the retailer expected to have between 450 and 500 stores globally after this process, down from its current total of about 800.

Forever 21 had announced last week that it would pull out of Japan by October due to "continued sluggish sales".

The California-based firm has now said it is seeking to close up to 178 stores across the US. It is also closing its stores in Canada, but has provided few details on other markets.

"Decisions as to which international locations will be closing are ongoing. We do not expect to exit any major markets in the US," the spokesperson said.

The retailer sought to reassure its customers in a public letter on Sunday, saying "stores are open" and "it will continue to feel like a normal day".

"This does not mean that we are going out of business - on the contrary, filing for bankruptcy protection is a deliberate and decisive step to put us on a successful track for the future."

Image copyright Forever 21
Image caption Forever 21 has faced competition from the likes of Zara, H&M, and Primark

Neil Saunders, managing director of GlobalData Retail, said: "The entry of Forever 21 into Chapter 11 bankruptcy is a consequence of both changing trends and tastes within the apparel market and of missteps by the company."

He said that as well as facing competition from the likes of H&M there was also a lack of clarity and differentiation at Forever 21.

"Over the past few years, the brand has lost much of the excitement and oomph which is critical to driving footfall and sales and is now something of an also-ran which is too easily overlooked.

"Store standards have also been sliding and consumer ratings for the quality of displays, merchandise, and the amount of inspiration in shops have dipped considerably over the past year."

He said bankruptcy would result in a much leaner US business, but he added that most, if not all, stores in Europe would be expected to close.

As part of the Chapter 11 proceedings, the firm says it has obtained $275m (£224m) in financing from existing lenders and $75m in new capital.

Executive vice president Linda Chang described the moves as an "important and necessary step to secure the future of our company, which will enable us to reorganize our business and reposition Forever 21".

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