Forever 21 files for second bankruptcy, blames Shein and Temu

Forever 21 filed for bankruptcy protection for the second time in six years on Sunday and blamed fast-fashion e-tailers Shein and Temu for its demise. 

The retailer’s operating company is expected to cease all operations in the U.S. and has already begun liquidation sales at its more than 350 locations, but it’s still open for bids if a buyer is willing to take on its inventory and keep running its stores, court filings show. 

Forever 21 has been seeking a buyer for several months and made contact with more than 200 potential bidders, 30 of which signed confidentiality agreements, but no viable deal has come together, court papers say. CNBC previously reported the operating company was in talks with liquidators and would have a hard time finding a buyer for its business.

The company’s bankruptcy comes six years after it emerged from its first filing only to face the Covid-19 pandemic, the highest inflation in decades, and new competition from Chinese-founded upstarts like Shein and Temu. 

In a court filing, Stephen Coulombe, the operating company’s co-chief restructuring officer, said Forever 21 was “materially and negatively impacted” by Shein and Temu’s use of the de minimis exemption, which “undercut” its business. The exemption is a trade law loophole that has historically allowed goods valued under $800 to be shipped into the U.S. without import duties. President Donald Trump is trying to end it.

“Certain non-U.S. online retailers that compete with the Debtors, such as Temu and Shein, have taken advantage of this exemption and, therefore, have been able to pass significant savings onto consumers,” Coulombe wrote. “Consequently, retailers that must pay duties and tariffs to purchase product for their stores and warehouses in the United States, such as the Company, have been undercut.”

“Despite wide-spread calls from U.S. companies and industry groups for the U.S. government to create a level playing field for U.S. retailers by closing the exemption, U.S. laws and policies have not solved the problem,” he added.

The owner of Forever 21′s operating company, Sparc Group, which recently reorganized to form a new company dubbed Catalyst Brands, tried to counteract Shein’s competitive threat in 2023 by partnering with the upstart. But the deal didn’t do enough to stem the company’s losses or lead to any changes in de minimis rules, said Coulombe.

“The ability for non-U.S. retailers to sell their products at drastically lower prices to U.S. consumers has significantly impacted the Company’s ability to retain its traditional core customer base,” wrote Coulombe. 

While Forever 21’s operating company is headed toward outright liquidation in the U.S., it doesn’t mean that the brand will cease to exist. Its international stores and website are expected to keep operating, and its brand name and other intellectual property owned by brand management firm Authentic Brands Group are not up for sale, CNBC previously reported. 

The firm could still find new…