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Is Forever 21 Bankruptcy Stalled?

Forever 21 Inc. will keep over 60 stores running in the U.S. previously planned to close as part of the firm’s bankruptcy restructuring. This new development came after the company secured rent concessions from its leading landlords, including Macerich Co. Tom O’Hern the CEO of Macerich. He said that they were having weekly negotiations with Forever 21 pertaining stores planned to shutter later this year or in 2020. As of now, Macerich hosts 28 stores of Forever 21.

Rent cuts not enough

Forever 21 has 800 stores globally, with 549 stores in the U.S. Almost of all them are leased by the company, with a total annual occupancy cost of $450 million. Burdened by unprofitable markets, expensive store leases, and ongoing disruption from web shopping, the teenage clothing segment became the latest sufferer in a retail market that is struggling from bankruptcies.

Now, the firm’s ability to come back to business while in bankruptcy is mainly at the mercy of its vendors and landlords. The opportunity to close leases and shutter stores at a reduced cost is a major benefit that the bankruptcy process offers retailers.

Forever 21 has considerable support from its landlords of lease structures. It applies to both the lease structures, the ones it plans to exit, and the second plan that it will be discussing the terms to stay in. Jim Van Horn, who is a bankruptcy lawyer, stated that it is not usually the model for Chapter 11 bankruptcies. And therefore, there exists a good probability that Forever 21 will come out of its bankruptcy.

The company intends to exit most global markets, including Europe, Asia, and Canada, evolving from Chapter 11 bankruptcy as a leaner firm focused on a smaller retail store base in the United States, Latin America, and Mexico.

Toys ‘R’ Us is one of the retailers that have filed for Chapter 11, expecting to restructure around $5 million in debt. HhGregg filed for bankruptcy in March, as the company continues to struggle with dismal sales for the last four years.

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