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Another Retail Giant Bites The Dust

Retailer

Following reports earlier this month that a bankruptcy for the fast-fashion pioneer was imminent, Forever 21 filed for Chapter 11 protection in Delaware Sunday night, becoming the latest brick-and-mortar retailer to succumb to the Amazon-driven 'retail apocalypse', Bloomberg reports.

In addition to the competition from e-commerce retailers, BBG said Forever 21 struggled with high rents and heavy competition from other fast-fashion rivals (like H&M and Zara).

Court papers show Forever 21 has estimated liabilities (on a consolidated basis) of between $1 billion and $10 billion. Thanks to Chapter 11 protection, Forever 21 will continue operating as it works out a plan to pay back all of its creditors. 

Part of that plan, again, according to the filings, will likely involve closing as many as 350 of its more than 800 stores around the world. Most of the closures will focus on Asia and Europe: The company has earlier announced plans to shutter all 14 of its Japanese stores. Meanwhile, its operations in Mexico and Latin America will continue, according to Reuters.

This means that nearly half of the chain's 30,000 employees could lose their jobs.

Even before the Forever 21 bankruptcy, the ~11,000 announced and completed store closures in the US were already on track to exceed to the totals from the past few years. One research shop projects annual closures in 2019 to hit 12,000 by year end.

Analysts at Goldman Sachs estimate that $7.5 billion of 'sales opportunity' will arise from store closures in 2019 as liquidation sales pull some demand forward.

Meanwhile, Goldman believes the shift to e-commerce will continue: "We believe e-commerce growth will likely accelerate over the course of the second half as a record number of retail store closures, initiatives around fulfillment such as Amazon’s $800 million investment in same-day delivery and Etsy’s move to free shipping...will drive more consumers to shift purchases online."

(Click to enlarge)

(Click to enlarge)

The Chapter 11 filing allows the Los Angeles-based company to keep operating while it works out a plan to pay its creditors and turn around the business.

Since the start of 2017, more than 20 US retailers - including former giants like Sears and Toys ‘R’ Us, as well as discount brands like Payless Shoes -  have filed for bankruptcy, as the sector has struggled with massive debt loads and a migrating consumer base. Related: Safe Haven Assets Shine As Recession Looms

And the pressure is only intensifying. Compared with the same period last year, Chapter 11 filings among American corporations have risen by nearly 20% in 2019, according to Reorg Research. 

 

Since 2015, retailers have accumulated more than $45 billion in aggregate liabilities from more than 80 filings.

Since June 2015, retail chains have accumulated more than $45 billion in aggregate chapter 11 liabilities in connection with over 80 bankruptcy filings:

 

However, thanks to a series of loans, Forever 21 might be able to exit bankruptcy protection more quickly than some of its rivals. The retailer has already locked down $275 million in financing from lenders including JPMorgan, which is acting as agent for the loan, along with $75 million in new capital from TPG Sixth Street Partners and its affiliated funds. Forever 21 still expects to be able to honor gift cards and merchandise returns, the company said.

"The financing provided by JPMorgan and TPG Sixth Street Partners will arm Forever 21 with the capital necessary to effect critical changes in the U.S. and abroad to revitalize our brand and fuel our growth, allowing us to meet our ongoing obligations to customers, vendors and employees," Linda Chang, executive vice president of Forever 21, said in a statement.

Forever 21 was founded in 1984, and before bankruptcy operated 815 stores in 57 countries.

By Zerohedge

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