The Wall Street Journal reports today that clothing retailer Forever 21 may file bankruptcy as soon as Sunday. Forever 21, if it files, will become the latest in a growing list of retailers that were major tenants in shopping malls across the country, joining companies such as Toys R Us, Radio Shack, Payless Shoes and others. Like those that went over the bankruptcy abyss before, Forever 21’s woes can be traced to the decline of foot traffic in brick and mortar locations as shoppers increasingly turn to online outlets.
Forever 21 was founded in 1984 as a retailer of low-price women’s clothing, catering to the younger consumer. Its over 700 stores operate in dozens of countries. In the early 2000s Forever 21 opened giant stores in places like Las Vegas, hoping to become a one-stop shop for its customers. Its practice of offering tops for $8 and sweaters for $10 had led to a deflationary cycle in women’s clothing that left other retailers gasping. But eventually Forever 21 itself ran out of steam and by 2015 it was rethinking that strategy and negotiating with landlords about downsizing.
As we’ve noted before, retail bankruptcies bring a host of problems for consumers, especially those holding gift cards to the store or warranties for goods purchased, both of which might become worthless in the bankruptcy. Gift cards and warranties are a form of debt to the retailer that can be restructured or eliminated altogether in bankruptcy, leaving consumers holding the bag, a bag that is now empty.
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