Forever 21 used to dominate the fast-fashion world but has now officially filed for Chapter 11 bankruptcy protection for the second time in six years. The retail giant is now going to close its US stores completely with sales already underway. The fall of the iconic brand is another blow to mall-based retail as its e-commerce competitors Shein and Temu revolutionize the fashion world.
Forever 21 began in 1984 in Los Angeles with South Korean immigrants Jin Sook and Do Won Chang. Forever 21 grew to the fast-fashion giant it is now within no time. At its peak, the company operated over 800 stores internationally and 500 of these were located within the United States. Its stores were frequented by teenagers and young adults who wanted to wear the latest fashion at bargain prices, and it became a fixture in the malls of North America, Europe, and Asia. Forever 21 was slow to make the transition when retail shifted to online shopping.
Why Is Forever 21 Going Out of Business?
Several core factors contributed to Forever 21’s economic collapse:
Rise of Online Competitors
The emergence of fast-fashion e-tailers Temu and Shein has flipped the fashion retail industry on its head so rapidly. These upstarts offer super-speedy production cycles and lower prices along with shipping straight from foreign makers abroad that brick-and-mortar rivals like Forever 21 haven’t been able to replicate. Shein and Temu, which are digital in nature compared to the expensive physical stores of Forever 21, cut on expenses and pass the savings on to the consumers.
Economic Challenges and Changing Consumer Behavior
The general economic climate has also worked against Forever 21. Rising inflation, supply chain issues, and the declining popularity of shopping malls have all impacted negatively on physical stores. As consumers tightened belts and went online, Forever 21 was not able to keep pace with foot traffic and profitability.
Trade Law Loopholes Favoring Foreign Retailers
One of the major causes of the decline of Forever 21 is the de minimis exemption, an US trade policy that allows foreign retailers to avoid paying duty on items worth less than $800 that are sent to US consumers. The loophole has given foreign e-tailers like Shein and Temu the cost edge over local brands that are more costly to produce and operate.
Forever 21 announced that it will shut down its US stores entirely on May 1, 2025, and gift cards will expire on April 15, 2025. Its bankruptcy report indicates that it has liabilities of between $1 billion and $10 billion and assets of between $100 million and $500 million.
While the U.S. locations of Forever 21 will shut down, the international locations of the company will remain open. Canadian, British, and Australian locations will remain open under new ownership arrangements because the intellectual property and trademark of the company remain the property of Authentic Brands Group.
The US closures of Forever 21 are representative of the overall retail trend. Other mall-dependent brands like Express and JCPenney also bankrupted in recent times, reflecting the shift from shopping in brick-and-mortar stores to shopping experiences driven by e-commerce.
