September 30, 2019 / 1:35 AM / 13 days ago

Forever 21 closing stores in bankruptcy filing shows limits to fast fashion

(Reuters) - Fast-fashion retailer Forever 21 filed for bankruptcy late on Sunday, joining a growing list of brick-and-mortar companies that have seen sales hit by the rise of competition from online sellers like Amazon.com Inc and the changing fashion trends dictated by millennial shoppers.

Forever 21 Inc, the privately held company that helped popularize trendy and cheap clothing, has fallen out of favor with shoppers, in part due to other retailers like Sweden’ H&M and Spain’s Zara that churn out affordable styles similar to those recently seen on designer runways.

Younger, more environmentally conscious shoppers are also choosing brands that ethically source garments instead of retailers that use cheap fabrics to make T-shirts that are snapped up for $5. Resale sites like thredUp.com, which calls itself the largest online thrift store, are also growing in popularity.

Forever 21, which has 815 stores in 57 countries, said the restructuring will allow it to focus on the profitable core part of its operations and shut stores in some international locations.

It has requested court approval to close up to 178 U.S. stores outside of its major markets.

On its website on Monday, Forever 21 sales included tops that started at $3 and dresses, handbags and jewelry and pants for $20 and under.

Gabriella Santaniello, founder of retail research firm A-Line Partners, said the bankruptcy would likely create pressure on other clothing retailers as Forever 21 slashes prices to clear inventory.

She said the chain did little to differentiate itself from others.

“They used to have a bit of an older customer, but customers have become more conscious of where they spend their dollars. They want sustainability, they want to feel represented and I don’t think Forever 21 particularly stood for any of this,” she said.

At midday on Monday, there were a handful of customers browsing the jogging pants, body suits and furry jackets in the 6-month-old store at Los Angeles’ upscale Santa Monica Place shopping center.

“I don’t know if I would shop here if it wasn’t for quick fixes,” like white t-shirts and other basics, said Michael Lambert, 33, who was visiting from St. Petersburg, Florida.

“You wash it once and it’s beat,” Sommer Reling, 25, said of clothing from the chain.

Jennifer Thurmond, 46, said she was optimistic the chain could turn itself around if Forever 21 was able to keep its fashions current and keep prices reasonable.

Shoppers browse through clothing at a Forever 21 fashion retail store at the King of Prussia mall in King of Prussia, Pennsylvania, U.S. September 30, 2019.

BIG STORES

Retail analysts said Forever 21’s low prices and extremely large stores may also be a cause of its financial trouble.

“Forever 21’s large stores have been the key to their downfall. How can you have profitability on sales per square foot with these large stores,” said Jane Hali, at research firm Jane Hali & Associates.

Fast-fashion rivals H&M and Zara have never had stores as large as Forever 21 and Zara only has about 85 stores in the United States, she noted.

Founded in 1984 and headquartered in Los Angeles, Forever 21 said it will close most of its stores in Asia and Europe but would continue operations in Mexico and Latin America.

Since the start of 2017, more than 20 U.S. retailers including Sears Holdings Corp and Toys ‘R’ Us have filed for bankruptcy as more customers shop online and eschew large malls.

Forever 21 also said on Sunday its Canadian subsidiary filed for bankruptcy and it plans to wind down the business, closing 44 stores in the country.

“Slimming down the operation and reducing costs is only one part of the battle. The long-term survival of Forever 21 relies on the chain creating a sustainable and differentiated brand,” Saunders said.

Forever 21 lists both assets and liabilities in the range of $1 billion to $10 billion, according to the court filing in the U.S. Bankruptcy Court for the District of Delaware.

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The retailer, which filed to reorganize under Chapter 11 bankruptcy protection, said it received $275 million in financing from its existing lenders, with JPMorgan Chase Bank NA as agent, and $75 million in new capital from TPG Sixth Street Partners and certain of its affiliated funds.

April Stanton, 33, a Forever 21 fitting room attendant at the Chicago store shrugged off the bankruptcy.

“We’re still making money. We make our daily sales goals here,” Stanton said.

Richa Naidu in Chicago and Aishwarya Venugopal in Bengaluru; Additional reporting by Rama Venkat in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Uttaresh.V and Lisa Shumaker

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