Fast fashion brand Forever 21 is seeking rent concessions as it grapples with financial difficulties.

• Some landlords are being asked for rent concessions of up to 50% by Forever 21, which is currently facing financial difficulties, according to sources.
• The fast fashion company that filed for bankruptcy in 2019 is not considering a second filing, according to sources.
• The company is facing challenges in managing its extensive store network and staying competitive against more agile digital newcomers.

CNBC has learned that Forever 21 is requesting a reduction in rent from landlords due to declining sales and increased competition.

CNBC reported that some landlords have been asked by the retailer, which has over 380 stores in the U.S., to reduce its rent by as much as 50%, according to people familiar with the matter.

Despite facing financial difficulties, the company is not considering hiring advisors or filing for bankruptcy again. Instead, it is focusing on restructuring its leases to reduce costs.

The fast fashion market is highly competitive, and Forever 21 faces challenges in managing inventory and understanding its customers, one source stated.

The retailer faced difficulties after filing for bankruptcy in 2019 and was later acquired by a group consisting of a brand management company and landlords.

The company had over 800 locations worldwide when it filed for bankruptcy.

When Forever 21 first filed for bankruptcy, its large store footprint was a significant burden on its balance sheet. The retailer had grown too quickly during its expansion phase, which left it unable to invest in its supply chain and adapt quickly to changing trends.

Closing hundreds of stores after filing for bankruptcy has not resolved its issues.

The financial struggles of Forever 21 have negatively impacted the performance of its operator, Sparc Group, which is a joint venture with Authentic, Simon, and Shein. Sparc manages the operations of Forever 21, as well as several other bankrupt retailers, including Aeropostale, Brooks Brothers, and Lucky Brand.

CNBC did not receive a response from Sparc, while Simon also did not respond to a request for comment.

Forever weighs on Sparc

According to sources, Sparc has been closely examining its finances and facing its own financial difficulties.

The challenges faced by Sparc arise from the complexity of integrating multiple legacy brands and centralizing their teams, technology, marketing, e-commerce, sourcing, and supply chains. Additionally, the company grapples with managing brands that have primarily operated in malls.

Poorly performing stores can negatively impact retailers' financials by causing expensive leases to drain cash.

Over the past year, Forever 21 has been consistently late in paying its vendors, as revealed by data from Creditsafe, a platform that analyzes companies' financial, legal, and compliance risks. Specifically, the data indicates that Forever 21's payment patterns to vendors have been unstable, with some bills going more than 70 days past due in late 2023, according to Creditsafe.

Numerous companies, including many healthy ones, fail to pay bills for weeks or months, but delayed payments may indicate bigger financial issues. According to Creditsafe spokesperson Ragini Bhalla, the industry average was between 12 and 13 days past due over the past 12 months.

Racing to compete

Currently, ultra-fast fashion retailers such as Shein and Temu are Forever 21's biggest competitors.

"Comparing a mobile phone from 2000 to the newest iPhone is like juxtaposing any brand that was around 20 years ago to these new, on-demand manufacturing fast fashion companies. The speed, quality, and everything else are just different," one of the people said. "Shein immediately makes any outfit that goes viral on TikTok, leaving regular brands struggling to keep up."

In January at the ICR conference, Jamie Salter, CEO of Authentic Brands, admitted that acquiring Forever 21 was likely his biggest career mistake, and he also acknowledged his error in underestimating the competitive threat posed by Shein and Temu.

David Simon, CEO of Simon, asked Salter why he wanted to partner with Shein during a conversation Salter recalled.

"I said, 'David, it's the right decision. We cannot beat them. Their supply chain is too good. They know what's going on. They've figured this out. We need to partner with them,'" Salter recounted. "So I was the one who bravely said, 'Let's go partner with these guys.'"

As part of their partnership, Shein will create, produce, and sell a line of co-branded Forever 21 clothing and accessories on their website. Additionally, Forever 21 has hosted Shein pop-up stores and started accepting Shein returns, which have positively impacted foot traffic in their shops, according to a source.

In August, Shein and Sparc joined forces, with Shein acquiring approximately one-third of Sparc and Sparc taking a minority stake in Shein.

Some industry observers questioned whether Shein could soon take over Forever 21's stores due to its successful pop-up shops, but one person said it's unlikely because the retailer lacks experience in physical retail and its business model involves small-batch production and an inventory that constantly shifts based on trends.