Forever 21 bankruptcy, an analyst's view

US retailer Forever 21 is mulling a bankruptcy. The news was first reported by Bloomberg on Wednesday, which said options for a turnaround are swiftly dwindling. Huge debts, underperforming stores and lacklustre collections have been ailing the troubled fashion chain.

Forever 21 currently operates over 800 stores in the US, Europe and Asia and is the 5th largest specialty retailer in the States. It is one of the few retailers to survive America’s shopping mall apocalypse. The news comes after negotiation with its lenders for debt restructuring stalled. Earlier in the year company officials approached its landlords to consider taking a stake in the retailer, an unsuccessful movement that was made without the consent of its co-founder Do Won Chang.

According to Steve Miley, senior market analyst at asktraders.com, “the bankruptcy filing would help the company to continue closing unprofitable stores and recapitalise the business which could lead to the survival of the brand. This process will test the consumer loyalty, with Forever 21 having to implement a strategy aiming at increasing the footfall in the stores that will remain opened and streamline the online operation. At this point it is not clear how the European operation is going to be affected.”

“This is the last example of the structural change affecting the retail market that was built on the supermarket concept of increasing footfall in large stores,” said Miley. “The structural shift towards online shopping will create more casualties amongst retailers with large shops that implies large running fixed costs.”

Photo courtesy of Forever 21