The proposed restructuring plan by fast-fashion retailer Forever 21 has left its suppliers and other unsecured creditors with significant losses. These creditors are being ‘getting smoked’ with the prospect of minimal repayment on the debts owed to them, stated attorney Justin Alberto at a recent virtual court hearing in Delaware.
Representing a committee of unsecured creditors that includes manufacturers and suppliers based in the US and China, Alberto mentioned, the committee is actively investigating a January deal where retailer JCPenney acquired Forever 21's parent company, Sparc Group.
In a court document filed earlier, the unsecured creditors' committee argued, this acquisition essentially obligated Forever 21 and its related entities to cover JCPenney's existing debt. In their April 10 filing, the committee expressed grave concerns, stating the outcome of these cases is dire for unsecured creditors and that the viability of certain of Forever 21'slargest vendors and the livelihoods of their employees dependent on it.
This March, Forever 21's US operating company filed for bankruptcy for the second time in six years, reporting approximately $1.6 billion in debt. The company's proposed plan to liquidate operations and exit bankruptcy would only repay unsecured creditors, such as suppliers and vendors, a mere 3 per cent to 6 per cent of their $433 million in claims, as indicated in court filings. Entities operating Forever 21 stores outside of the U.S. are not part of this bankruptcy proceeding.
Forever 21 attributed its financial difficulties to declining foot traffic in shopping malls and increasing online competition within the fast-fashion industry. The company also claimed that it faced a competitive disadvantage due to the ‘de minimis’ exemption, which allowed foreign competitors like Shein to import low-value packages from China without paying customs duties.
However, a recent executive order by US President Donald Trump has eliminated this exemption for goods from China and Hong Kong, effective May 2nd.
A member of the Sparc Group and the owner of Forever 21's intellectual property, Authentic Brands Group indicates, it might re-license the brand's IP. This could potentially keep the Forever 21 brand alive in the US in some form despite the bankruptcy of its operating company.
