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Forever 21 prepares to file for bankruptcy

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Apparel retailer Forever 21 is considering filing for bankruptcy as efforts to restructure its debt run dry, a person familiar with the situation told CNBC.

SEE ALSO : Forever 21 leaving China

The retailer has been exploring restructuring options to shore up its liquidity as it struggles with its business, CNBC previously reported. Those efforts, though, have stalled, making a bankruptcy more likely.

It could not be immediately determined whether the company has begun to raise a so-called debtor-in-possession loan that would fund a potential bankruptcy, and it is still possible the company is able to avoid a filing. Bloomberg first reported news of a potential bankruptcy filing.

Many of the most troubled retailers, like Forever 21, are located in malls, where fewer shoppers are spending their money. As sales decline, the companies are still weighed down by large, expensive store bases even as the retailers need to invest in technology to fend off competition from new brands born online, like Lulus.

Forever 21′s real estate footprint is particularly large, with more than 815 stores globally. Bankruptcies are a tool retailers can use to get out of undesirable leases. Retailers like Barneys and Mattress Firm have filed for protection to downsize their footprints.

Should a bankruptcy take place, Forever 21 would likely look to emerge with a slimmer fleet of stores. Still, any closures would likely put pressure on the mall owners that lease these spaces, including Simon Property Group and Brookfield Property Partners.

Forever 21 is Simon’s seventh-largest in-line tenant in terms of how much rent it brings the landlord, with 99 stores across Simon’s portfolio.

CEO David Simon had told analysts in July that he would consider infusing more capital into distressed retailers, not naming names specifically, in order to guarantee keeping stores open. Simon helped buy teen apparel retailer Aeropostale out of bankruptcy court roughly three years ago.

SEE ALSO : Barneys files for bankruptcy

Forever 21, Simon and Brookfield did not immediately respond to CNBC’s request for comment.

(Source: CNBC)

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