Clothing store Forever 21 weighs bankruptcy filing

Troubled retailers such as Forever 21 are located in malls, where fewer shoppers are spending their money.
Image: Forever 21 in Times Square in New York on June 10, 2017.
Forever 21 in Times Square in New York on June 10, 2017.George Rose / Getty Images file

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/ Source: CNBC.com
By Lauren Hirsch, CNBC

Apparel retailer Forever 21 is considering filing for bankruptcy as efforts to restructure its debt run dry, a person familiar with the situation told CNBC.

The retailer has been exploring restructuring options to shore up its liquidity as it struggles with its business, CNBC previously reported. Those efforts, though, have stalled, making a bankruptcy more likely.

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It could not be immediately determined whether the company has begun to raise a so-called debtor-in-possession loan that would fund a potential bankruptcy, and it is still possible the company is able to avoid a filing. Bloomberg first reported news of a potential bankruptcy filing.

Many of the most troubled retailers, such as Forever 21, are located in malls, where fewer shoppers are spending their money. As sales decline, the companies are still weighed down by large, expensive store bases even as the retailers need to invest in technology to fend off competition from new brands born online, like Lulus.

Forever 21′s real estate footprint is particularly large, with more than 815 stores globally. Bankruptcies are a tool retailers can use to get out of undesirable leases. Retailers like Barneys and Mattress Firm have filed for protection to downsize their footprints.

Should a bankruptcy take place, Forever 21 would likely look to emerge with a slimmer fleet of stores. Still, any closures would likely put pressure on the mall owners that lease these spaces, including Simon Property Group and Brookfield Property Partners.

Forever 21 is Simon’s seventh-largest in-line tenant in terms of how much rent it brings the landlord, with 99 stores across Simon’s portfolio. CEO David Simon had told analysts in July that he would consider infusing more capital into distressed retailers, not naming names specifically, in order to guarantee keeping stores open. Simon helped buy teen apparel retailer Aeropostale out of bankruptcy court roughly three years ago.

Forever 21, Simon and Brookfield didn’t immediately respond to CNBC’s request for comment.