Shrinking Forever 21 may seek bankruptcy protection

Californian fast-fashion retailer Forever 21 is reportedly preparing to file for bankruptcy protection after failing to reach a deal to refinance its heavy debt load. 

Citing people with knowledge of the plans, Bloomberg has reported that the company has been in talks for additional financing and working with a team of advisers to help it restructure its debt, but negotiations with possible lenders have so far stalled.

There are reports that a major barrier to any deal being reached is the unwillingness of co-founder Do Won Chang to accept less than a controlling interest in the business in return for investment which could place the retailer on a firmer financial footing. 

Now the company is believed to be looking to secure a so-called ‘debtor-in-possession loan’ which would allow it to file for Chapter 11 bankruptcy protection. 

With more than 800 stores in the Americas, Asia and Europe Forever 21 grew from a single store in Los Angeles in 1984 opened by Chang and his wife Jin Sook. While its international growth trajectory was rapid in the 2000s, in later years it has failed to keep pace with European rivals H&M and Zara and Japan’s Uniqlo, leading it to shutter flagship stores like the giant, three-story space in Hong Kong’s Causeway Bay. 

It no longer has a store in Hong Kong, but sells online there. In Asia, its network covers the Philippines, South Korea, Japan, Malaysia, Singapore, Indonesia and India. 

Like a raft of other troubled US retailers entering Chapter 11 protection, Forever 21 would have the ability to close unprofitable stores, reduce its payroll and recapitalise the business.

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