After no rival offers emerged, Forever 21 has decided to move forward with the stalking-horse bid put forth by mall owners Simon Property Group and Brookfield Property Partners as well as brand management firm Authentic Brands Group.
The $81.1 million proposal underscores the hard fall of the fast-fashion retailer, which was once worth nearly $4 billion. But it’s not just Forever 21 that’s in the pit: The offer suggests that Simon and Brookfield are desperate to keep the chain as anchor tenants to avoid vacancies at their malls — while dozens of stakeholders including suppliers and other creditors said they expect to lose millions as no provisions for payments were made for them.
“I think it’s just the best of a bad situation,” Jon Pasternak, bankruptcy partner at Davidoff Hutcher & Citron LLP, told FN last week. “There’s a lot at stake here: the shopping mall industry, which really has the most to lose at this point; the manufacturers and overseas shippers to see if they’re still going to have this line of their business; and the landlords, which has rippling effects for the economy in terms of the value of commercial real estate.”
Even ABG — which holds various apparel, athletics and entertainment brands’ licensing rights, including the recently liquidated Barneys New York — faces the challenge of making the Forever 21 brand relevant to today’s consumers, said Eric Snyder, partner at Wilk Auslander and chairman of the firm’s bankruptcy department.
“There are no hedge funds or larger retailers that are interested in purchasing the goodwill of the company. Inventory is one thing, but this is really about the name of the brand,” he said in an interview last week with FN. “The Forever 21 name doesn’t mean what it used to mean.”
As part of the deal, Simon and Brookfield — two of the teen mall staple’s biggest landlords — are expected to maintain operations at key Forever 21 locations, as dark storefronts at their malls could lead other retailers to demand lower rents or exit their leases. The transaction preserves about 25,000 jobs, and the new owners have agreed to assume certain liabilities including $53 million in merchandise that hasn’t yet been paid.
In 2016, Simon made a similar rescue effort through its partnership with mall owner General Growth Properties — now owned by Brookfield — to save Aeropostale from liquidation. The landlords then had more than 200 of the Aeropostale shops in their combined portfolio.
Forever 21 was founded in 1984 by South Korean husband-and-wife Do Won Chang and Jin Sook Chang and through the decades has remained a privately held company. However, with changing preferences among its target shoppers, who are increasingly turning to e-commerce for fashion, it joined a rapidly expanding list of retailers that have filed for Chapter 11 protection in a bid to restructure and rightsize their store fleets.
In its bankruptcy filing in September, Forever 21 noted that it had employed 43,000 people and recorded $4.1 billion in annual sales at its peak. It added that its estimated assets were on par with liabilities in the range of $1 billion to $10 billion.
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