Forever 21, the once-dominant fast fashion retailer, filed for Chapter 11 bankruptcy protection on March 16, 2025, marking its second financial restructuring in less than six years. The company, operating under parent entity F21 OpCo, LLC, submitted its petition in the United States Bankruptcy Court for the District of Delaware (Case No. 25-10469), detailing a comprehensive strategy that includes the liquidation of all its U.S. retail operations while simultaneously pursuing potential going-concern transactions.
Financial Deterioration and Competitive Pressures
According to a detailed 51-page declaration filed by Stephen Coulombe, Co-Chief Restructuring Officer, Forever 21 has experienced severe financial deterioration, losing more than $400 million over the past three fiscal years, including approximately $150 million in fiscal year 2024 alone. Current projections indicate an anticipated EBITDA loss of $180 million through 2025.
"The historic rise in inflation rates beginning in 2021 led to a significant increase in the Debtors' cost of doing business, including the cost of inventory, distribution, transportation, and employee wages," Coulombe stated in the filing.
The retailer's substantial debt burden includes approximately $1.085 billion under an ABL facility, $321 million under a term loan facility, and $176 million under a subordinated loan facility. Additionally, Forever 21 owes approximately $320 million to Aero, an affiliate under the SPARC Group umbrella, resulting from a cash pooling arrangement that had been in place prior to its current financial distress.
Tariff Exemption Creates Uneven Playing Field
A key factor cited in Forever 21's collapse is the competitive disadvantage created by the "de minimis exemption" in U.S. trade policy, which exempts imported goods valued under $800 from import duties and tariffs. The declaration specifically names international online retailers Temu and Shein as beneficiaries of this exemption.
"Certain non-U.S. online retailers that compete with the Debtors... have taken advantage of this exemption and, therefore, have been able to pass significant savings onto consumers," the filing explains. "Consequently, retailers that must pay duties and tariffs to purchase product for their stores and warehouses in the United States, such as the Company, have been undercut."
Despite attempts to counteract these challenges through a partnership with Shein in 2023 and advocating for relief from the exemption, these efforts "have not resulted in any changes to the exemption nor stemmed the Company's losses."
Two-Track Strategy: Store Closings and Going-Concern Sales
Prior to the bankruptcy filing, Forever 21 had already commenced store closing sales at all 354 of its U.S. locations, implementing a phased approach:
- "Wave 1" sales began on February 14, 2025, at approximately 236 retail locations, scheduled to conclude around March 30, 2025
- "Wave 2" sales commenced on February 27, 2025, at the remaining 118 locations, with all liquidations expected to conclude before May 1, 2025
The liquidation process is being managed by a joint venture comprised of Hilco Merchant Resources, LLC, Gordon Brothers Retail Partners, LLC, and SB360 Capital Partners, LLC, following a competitive bidding process.
Simultaneously, Forever 21 is pursuing potential going-concern opportunities through investment banking firm SSG Capital Advisors, LLC. The declaration states that SSG has contacted 217 strategic and financial buyers, with 30 parties entering into confidentiality agreements and conducting due diligence. The company has also engaged Retail Consulting Services, Inc. d/b/a RCS Real Estate Advisors to solicit interest in its lease portfolio.
Corporate History and Recent Ownership Changes
The current bankruptcy follows Forever 21's previous Chapter 11 filing in 2019, after which it was acquired by a joint venture formed by Simon Property Group, Brookfield Property Partners, and Authentic Brands Group in February 2020. The company initially showed signs of recovery post-pandemic, generating approximately $2 billion in revenue and $165 million in EBITDA in fiscal year 2021.
In a significant development immediately preceding the bankruptcy, JC Penney acquired SPARC Group (Forever 21's parent company) on December 19, 2024, forming a new entity called Catalyst Brands. This acquisition consolidated six retail brands under one umbrella, creating an operation with 1,800 store locations and 60,000 employees.
Governance and Restructuring Plan
In January 2025, Forever 21 formed a new independent board of managers comprised of restructuring experts Paul Aronzon and Scott Vogel to oversee the company's strategic alternatives. The company also retained Young Conaway Stargatt & Taylor, LLP as its primary bankruptcy counsel, Paul, Weiss, Rifkind, Wharton & Garrison, LLP as corporate and finance counsel, and Berkeley Research Group, LLC as financial advisors.
The retailer has secured a consensual agreement with its secured lenders for the use of cash collateral during the bankruptcy proceedings and has negotiated a plan support agreement (PSA) outlining terms for a liquidating plan. Under this arrangement, general unsecured creditors may receive distributions of up to 6% of distributable proceeds, despite being significantly out of the money given forecasted recoveries.
The restructuring plan includes several key milestones:
- Filing a Plan & Disclosure Statement by March 26, 2025
- Obtaining Final Cash Collateral Order & Store Closing Order by April 20, 2025
- Entry of Solicitation Procedures Order by May 5, 2025
- Entry of Confirmation Order by June 14, 2025
- Plan Effective Date by June 19, 2025
Store Operations and Customer Programs
As of the Petition Date, Forever 21 operates approximately 354 leased stores in the United States, including Puerto Rico, with approximately 123 located in shopping malls, 55 in outlet centers, and the remainder in cities and suburban shopping areas. The company also maintains a corporate headquarters in Los Angeles, California, and a 656,000 square foot distribution center in Perris, California.
The retailer has requested court approval to honor gift cards through April 15, 2025, which is thirty days after the Petition Date. The company stopped selling new gift cards at store locations and on its website by March 3, 2025, and has posted notices about the redemption deadline in stores and online.
Forever 21 employs approximately 1,750 full-time employees, 7,190 part-time employees, and 320 seasonal employees. The company has implemented a Store Level Retention Program for approximately 1,360 store-level employees to ensure sufficient staffing during the liquidation process.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 51 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.