Forever 21 Files for Bankruptcy Again, Citing Shein and Temu as Key Factors

Forever 21 has filed for bankruptcy protection for the second time in six years, blaming fast-fashion giants Shein and Temu for its financial struggles. The retailer’s operating company is shutting down all U.S. stores and has already begun liquidation sales at more than 350 locations. However, the company is still open for bids if a buyer is willing to take over its inventory and keep stores running, court filings show.

Forever 21 had been seeking a buyer for several months and engaged with over 200 potential bidders, but no viable deal came together. The brand’s parent company, Authentic Brands Group (ABG), is now working to find new operators to continue the business.

Financial Struggles and Competition

Forever 21 first filed for bankruptcy in 2019, but after restructuring, it faced the COVID-19 pandemic, inflation, and increasing competition from online retailers. Over the past three years, the company has lost more than $400 million, including $150 million in fiscal 2024 alone. Reports indicate it will lose $180 million in EBITDA by 2025.

The company currently owes $1.58 billion in loans and over $100 million to clothing manufacturers in China and Korea. Despite efforts to cut costs, including renegotiating rents, these actions were not enough to prevent a second bankruptcy.

Shein and Temu’s Role in Forever 21’s Decline

Court documents reveal that Forever 21 blames Shein and Temu for its downfall, specifically pointing to the de minimis exemption. This trade loophole allows imports valued under $800 to enter the U.S. duty-free, giving foreign e-commerce retailers an advantage over traditional stores.

"Retailers like Shein and Temu have used this exemption to lower their prices, while U.S. retailers must pay duties and tariffs," said Stephen Coulombe, Forever 21’s co-chief restructuring officer.

The company had attempted to partner with Shein in 2023 to counteract its market dominance, but the collaboration failed to improve sales or influence de minimis regulations.

Future of the Forever 21 Brand

While Forever 21’s U.S. operations are shutting down, its international stores and e-commerce presence will continue. The Forever 21 brand, intellectual property, and trademarks remain under Authentic Brands Group, which is not selling the company name.

“We are receiving interest from potential operators who share our vision and are ready to modernize Forever 21, ensuring its long-term success,” said Jarrod Weber, Global President at ABG.

Although Forever 21 is no longer a retail giant in the U.S., it still holds global brand recognition. The possibility of new leadership taking over the brand remains open, meaning Forever 21 could still return to the U.S. market in the future.


News Source: CNBC