Bankruptcy Fast Fashion Brand Forever 21 Requires Suppliers To Provide Credit Service.

January 26th: Bloomberg quoted sources as saying that the US real estate giant SimonPropertyGroupInc. (NYSE:SPG) Simon real estate and brand management company AuthenticBrandsGroupLLC (hereinafter referred to as "ABG") is interested in acquiring the US fast fashion cheap retailer Forever21Inc. for bankruptcy protection.

The fast fashion group, founded in 1984 by the Korean Americans DoWonChang and JinSookChang, has surged over the past few years due to leverage expansion, and filed for bankruptcy protection at the end of September 2019. It hopes to exit 40 national businesses through bankruptcy reorganization, including most of the Asian and European markets, while seeking the most closure of 178 stores in the US market.

In recent weeks, Forever21Inc. suppliers have been warned that if the brand of their services can not be immediately financing, they may enter the liquidation process.

As cash flow is running out, Forever21Inc. sends a letter to suppliers asking for credit. The fast fashion group of America hopes to pay only half of the cash delivered by the supplier between January 20th and February 4th and pay within one week after receiving the goods, while the remaining 50% payments are paid in the form of super unsecured bonds in the bankruptcy proceedings.

However, Forever21Inc. promised suppliers that they would provide information about potential buyers in the coming weeks.

Simon estate has been linked with the intention to acquire Forever21Inc.. DavidSimon, chief executive of the real estate giant, has previously said it is considering helping some troubled retailers, including investment, to ensure that they can continue to operate. The company previously participated in the rescue of the youth brand AeropostaleInc..

By the end of March 31, 2019, Simon estate was the sixth largest owner of Forever21Inc. in addition to department stores. It provided 99 stores for American brands, with a total area of 1 million 500 thousand square feet, but rents accounted for only 1.4% of Simon's properties. Simon property is understood to be the eighth largest creditor of Forever21Inc., and the US fashion group's arrears amounted to US $8 million 100 thousand.

According to documents filed for bankruptcy protection by Forever21Inc., the company has a debt of 10-100 billion dollars. The group's executive vice president, who is also the founder of DoWonChang and JinSookChang's daughter LindaChang, said in a bankruptcy protection statement that through Chapter11, it hoped to simplify the way the company could resume its continuous operation. She admitted that in 6 years, the expansion from 7 markets to 47 has brought complexity to the company, and at the same time, the retail industry is undergoing significant changes. The number of shopping centres has declined, and sales have shifted more to online channels.

Forever21Inc. and Simon real estate and brand management company ABG declined to comment on the rumours of the transaction.

In recent years, the rise of ABG in the US retail market, with a large number of poor or bankrupt brands, has come through low price acquisitions. The brand management company recently traded for New York and even the US Department Store BarneysNewYorkInc., Barnes New York department store, the latter consortium of ABG and investment bank B.RileyFinancialInc. with a total of $271 million 400 thousand.

The usual practice of acquiring brand ABG is to close the store and sell the original brand owned property of the brand, and continue to operate through the way of IP authorization. ABG currently owns 50 brands IP, such as JuicyCouture, NineWest, A e ropostale, etc., and is one of the largest players in the field of global brand authorization.

Extended reading:

In September 29th, the US fast fashion giant Forever21 filed for bankruptcy protection and became another hit fashion retailer in the US.

Forever21 said that through bankruptcy reorganization, the company can focus on profitable core American business and close other poorly managed overseas stores. "We have approved the closure of up to 178 stores in the US market," the company said in an email statement. "What kind of US stores will be closed in the future, and the outcome of consultations with owners?"

Forever21 said it hopes to retain most of the US stores and do not plan to withdraw from important US markets. In addition to the US market, Forever21 also plans to close most stores in Asia and Europe. Last week, the company announced that it would withdraw from the Japanese market and close all 14 stores in Japan by the end of October.

As early as the end of April this year, Forever21 announced that it had completely withdrawn from the Chinese market and closed down all offline stores and online channels. As early as 2017, the company closed the six flagship store in Tongluowan, Hongkong, China. In March of this year, Forever21 withdrew from the Chinese market in Taiwan.

In addition, Forever21's Canadian subsidiary has also filed for bankruptcy. It will end Canadian business and close all 44 stores in the future, but stores in Mexico and Latin America will continue to operate.

Documents from the bankruptcy court of Delaware district court show that Forever21's current assets and liabilities are between 10~100 billion dollars. The company currently receives $275 million from existing lending institutions, and has raised $75 million from TPGSixthStreetPartners and its associated funds.

In this transaction, Kirkland&EllisLLP acted as Forever21's legal adviser, Alvarez&Marsal served as bankruptcy reorganization consultant, and Lazard (Reed group) was its investment bank.

Founded in 1984, Forever21 currently operates 815 stores in 57 countries and regions around the world, of which about 600 are in the US. If the brand declares bankruptcy, a big closet will inevitably have a great impact on the income of its owners.

Forever21 was founded by Korean American couple Zhang Dongwen (DoWonChang) and Zhang Jinshu (JinSookChang), headquartered in Losangeles, formerly known as Fashion21, and was originally a clothing store with an area of only 84 square meters. Because of its fashionable style and fast speed, it has been popular among young consumers. After a period of rapid development, it has become the fifth largest clothing retailer in the United States. Its footprint is spread over Asia, Europe and the Americas, and its business range extends from women's clothing to men's wear, ornaments, shoes and large size clothing. The company is still privately owned by the founder family. Its annual sales in 2014 were $3 billion 800 million, and sales in 2017 were estimated to be $3 billion 400 million according to Forbes.

In June, people familiar with the matter said that Forever21 hired a restructuring consultant to weigh up the restructuring plan, hoping to increase liquidity and bring about a turning point for the declining business. We hope that we can improve the company's management by closing stores and loans, and avoid filing bankruptcy protection applications. Later, due to negotiations with potential creditors, Forever21 began to consider matters related to the application of DIP (Debtor-In-Possession) special loans, hoping that the company would enter bankruptcy protection procedures.

Just before the announcement of the bankruptcy filing of Forever21, an insider said the negotiations on the company's bankruptcy reorganization plan were deadlocked again. Forever21 hopes to win some support from the owners of the group stores with a share of the shares under the premise of retaining the controlling stake of Zhang Dongwen, the co founder of the company. But the owners, led by the US commercial real estate giant SimonPropertyGroupInc. and the commercial real estate company BrookfieldPropertyPartnersLP, did not accept their proposal. This means that Forever21 will not have any ready-made restructuring plans when filing bankruptcy protection applications to the court. This will not only lengthen the reorganization time of the company, but also make the reorganization process more complicated.

Because of the poor overall environment of the retail industry, many retailers in the United States have gone bankrupt. According to a report released on CoresightResearch9 27, 8567 retail stores in the United States have closed this year.

Since 2017, when consumers are turning to online shopping, resulting in the decline of shopping malls, more than 20 American retailers have declared bankruptcy, including department store SearsHoldingsCorp, toy retailer Toys' R 'Us (Toys R & D) and so on. In 2017, Credit Suisse predicted that by the end of 2022, 220 ~275 shopping centers would be closed in the United States, accounting for the total 20%~25%.