A consortium of buyers — including mall owners Simon Property Group and Brookfield Property Partners as well as Authentic Brands Group — is arguably close to sealing a deal to snap up Forever 21, the teen mall staple that filed for bankruptcy protection in September.
Together, Simon and Brookfield are Forever 21’s biggest landlords, offering $81.1 million to rescue the once-$4 billion empire. (Brand management firm ABG holds various apparel, athletics and entertainment brands’ licensing rights, including the recently liquidated Barneys New York.) According to bankruptcy experts, the mall owners’ offer to buy the fast-fashion retailer suggests that Simon and Brookfield are desperate to keep Forever 21 as anchor tenants to avoid vacancies at their malls, which could lead to other retailers demanding lower rents or exiting their lease.
“I think that it’s indicative of how rough the retail environment that [Simon and Brookfield] is the stalking-horse bidder,” 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… They’re the only viable buyer to try to keep it going because it affects the rest of their business.”
Jon Pasternak, bankruptcy partner at Davidoff Hutcher & Citron LLP, echoed the same sentiment. “There’s obviously a vested interest in this for Simon and Brookfield so that they don’t end up with hundreds of dark stores,” he said. “It’s an investment they’re making in the hopes that these stores can hold their own.”
In 2016, Simon took a similar tack 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.
In an earnings call on Tuesday, Simon Property Group CEO David Simon compared the two retailers, adding that Forever 21, like Aeropostale, “presents a very interesting repositioning opportunity.”
Amid shrinking sales and declining foot traffic, California-based Forever 21 filed for bankruptcy in the fall with intentions to restructure and focus on the profitable core part of its operations. FN learned in November that Forever 21 intended to close 111 domestic stores but keep open its outposts in Mexico and Latin America.
On Tuesday, a judge approved the retailer’s proposal to name the three companies — Simon and Brookfield as well as ABG — as its stalking-horse bidder. Other parties have until the end of the day to make counteroffers. (If a higher bid is submitted, Forever 21 will hold an auction on Feb. 10.)
“The attractive thing for the bankruptcy court was this [deal] was going to at least save some jobs and keep stores open, which will benefit employees, landlords and possibly give ongoing vendors a chance to recoup their losses,” Pasternak said. “You have at least the glimmer of hope here that they’re not completely giving up on the retail model.”
Pasternak contrasted Forever 21’s predicament to that of Barneys, which ushered in a new chapter with ABG’s acquisition of its intellectual property in November. Over the past couple months, the retailer has worked toward shutterings its seven existing stores, including the 660 Madison Avenue outpost, and is selling merchandise until the end of February.
“With Forever 21, we could’ve had a total shutdown, which could have rippling effects for the economy in terms of the value of commercial real estate and all types of sectors involved in fashion retail,” he said.
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 move forward.
“The issue here was more of the perils of retail versus the internet, and [Forever 21’s] inability to stay up with fashion,” Snyder explained. “Forever 21 is emblematic of retail. It’s a very competitive environment in a very difficult time for retail — they were very slow about keeping up with the times, and that’s what killed them.”
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