The US branch of Forever 21 filed for bankruptcy in a Delaware court on Sunday, citing fierce competition with international brands using De Minimis Import Theophole.
F21 OPCO, the company that operates around 350 U.S. stores for Forever 21, said in a statement that its U.S. stores and websites remain open for operation for the time being, but plans to “became an orderly wind” of its domestic business.
“We evaluated options to best position all options for the future, but considering our competition with foreign first fashion companies, we were unable to find a sustainable path.
The De Minimis rules allow tax-free entry into the US for all items priced under $800 shipped to individual buyers, a trade clause that has benefited much, especially during the pandemic when online shopping has boomed. Meanwhile, it will greatly help the disadvantage of US retailers who are being charged customs duties on imported goods.
It also sells products as “higher costs, economic challenges affecting core customers, and evolving consumer trends.”
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With the Chapter 11 bankruptcy filing, F21 OPCO is still floating for now, but employees continue to receive wages and benefits as normal as long as they remain employed.
The company said it would seek permission from the court to sell the assets through auction.
If the sale is successful, “the company can operate away from full operation to promote ongoing trading,” F21 OPCO said.
This is the second time in six years when a first fashion retailer filed for bankruptcy.
Forever 21 won Korean immigrant couples Jin Chang and Jin Soouk Chang in Los Angeles in 1984. The business was an instant hit among young shoppers looking for cool, trendy and affordable clothes.
According to the Forever 21 website, the clothing chain currently has over 540 locations worldwide and online. At its peak, the company operated 800 locations around the world.
Forever 21 stores that are not based in the US will not be affected by F21 OPCO bankruptcy filings.
