Forever 21 Bankrupt, Joins Trend

Forever 21 has closed 178 stores worldwide since March due to bankruptcy reorganization.

According to Mergent, in 2018, U.S. retail sales totaled to $1.43 trillion, with $137.75 billion of that strictly being online retail sales. Malls are becoming a thing of the past, with online shopping as the new normal.

Forever 21 is a privately-owned fast-fashion retailer with a focused target market of females ages 14-24. According to Business Insider, Forever 21 filed for Chapter 11 Bankruptcy Reorganization in September. Five of the lower-performing stores in Pennsylvania will be affected.

With Forever 21 being a privately-owned company, it is difficult for the public to find specific financial information. Despite this barrier, Associate Professor of Management Sharon Turchick believes their financial hardships may be due to upfront costs and failure to pay off loans.

“What people don’t realize is that it doesn’t matter if a company is growing fast. They will be cash poor,” Turchick said. “Upfront costs go out the door, and businesses are physically left with nothing. I always say ‘you can’t get blood from a rock,’ meaning yes, a company may owe so much money and may have agreed to pay; however, if they don’t have it, they simply won’t pay. That is where reorganization and negotiation between businesses and bankruptcy firms come in.”

This is exactly what has happened to the fast-fashion industry; Forever 21 produced too many current-trending fashions but wasn’t generating enough cash from operations. This resulted in store closures in Monroeville, Erie, Philadelphia, and Willow Grove.

But this isn’t quite the end of Forever 21. There is a big difference between bankruptcy liquidation and bankruptcy reorganization.

“Bankruptcy reorganization is like a timeout,” Turchick said. “It gives businesses a timeframe to restructure while also being protected against bankruptcy agents.”

Bankruptcy can happen to any business for reasons like poor management, fading trends, technological advances, competitors, growth timeframe, and more. The deciding factor of if a business advances is if they sit down and listen.

“Listen to the market and change with it,” Turchick says. “Are there enough people who want a cheaply made $3 shirt, or are there more who are willing to pay $10 for better quality?”