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Forever 21, Inc. – Seeks Authority to Close Up to 178 Under-Performing Stores Now (98 More Going Forward), Looks to Pressure Landlords into Lease Renegotiations

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October 1, 2019 – The Debtors requested Court authority (i) to enter into a store closing consulting agreement with a contractual joint venture comprised of Gordon Brothers Retail Partners, LLC and Hilco Merchant Resources, LLC (together, the “Consultant,” with the consulting agreement attached as Exhibit A to the motion), (ii) to close the 178 stores listed on Annex 2 to Exhibit A (the "Designated Closing Stores") and (iii) close additional stores at later dates (collectively, the “Supplemental Closing Stores,” and together with the Designated Closing Stores, the “Closing Stores”) [Docket No. 81]. The total number of Closing Stores is not to exceed 276 without the consent of the Consultant.

Gordon Brothers and Hilco have also recently teamed up in the Things Remembered, Inc. cases, the Shopko cases, the Charlotte Russe Holding cases (their bid losing to SB360) and the Barneys cases (also ultimately unsuccessful).

Notwithstanding that the Debtors state their intention to start sales at Designated Closing Stores, each of which has already been identified as under-performing in a completed performance evaluation, by October 31st (and finish sales by the end of the year), the Debtors go to considerable effort to stress that they "do not anticipate closing all of the Designated Closing Stores or any Supplemental Closing Stores[emphasis in the original], noting that "For the avoidance of doubt, the Debtors do not anticipate closing all 178 store locations listed on Annex 2.  As the Debtors negotiate rent concessions and other operational improvements with the applicable landlords, the Debtors expect that it will be in the Debtors’ best interest not to conduct Store Closings at certain locations.  If the Debtors determine to keep such store locations open, the Debtors will remove these store locations from Annex 2 and file an amended Annex 2 prior to the Court’s hearing on this Motion."

The Debtors preferred mix of closed stores and renegotiated leases is not yet clear; but, in any event, the Debtors are obligated to notify the Consultant of any stores coming off of the list of 178 stores currently on Annex 2 by October 25, 2019. What is clear is that the Debtors want to move fast enough to capitalize on the approaching holiday season and be in a position to use Closing Stores as a vehicle for shifting stock existing elsewhere in the Debtors' business. The motion states: "The Debtors seek approval of the Store Closing Procedures in light of the need to commence the Sales and Store Closures associated with the Designated Closing Stores during the approaching traditionally high-volume season…during which they would be authorized and empowered to transfer Merchandise, FF&E, and Additional Consultant Goods among, and into, the Closing Stores."

The Debtors' motion continues, “As of the Petition Date, the Debtors operate 549 retail stores in 45 states, Guam, and Puerto Rico. Like many retailers, the Debtors have struggled to support their outsized store footprint as consumers increasingly purchase clothing and other goods online. However, in contrast to other retailers who sought chapter 11 relief to facilitate nationwide store closures to the detriment of their landlords, the Debtors expect to be able to solicit the postpetition support of their landlords in order to craft a consensual solution to an industrywide problem. The Store Closing Procedures are a necessary tool for the Debtors to reinvigorate their strong underlying business and allow for a reorganized business unburdened by under-performing operations… After conducting the Performance Evaluation, the Debtors’ management team and advisors determined it may be appropriate to close and wind down or conduct other similarly themed sales (‘Store Closings’) for up to 178 under-performing brick-and-mortar store locations. Pursuant to the Order, the Debtors seek to commence the Sales for the Designated Closing Stores no later than October 31, 2019 and expect such Sales and Store Closings to be completed and the properties vacated by December 31, 2019. To the extent the Debtors determine to close any Supplemental Closing Stores, such related Sales may continue into 2020. While the expected total proceeds from the Sales will depend on the number of Designated Closing Stores that are ultimately closed, Debtors estimate that the total inventory cost in these store locations is approximately $80 million as of the Petition Date… The Store Closings are a critical component of the Debtors’ go-forward business plan, and entry into the Consulting Agreement will allow the Debtors to conduct the Sales and Store Closings in an efficient, controlled manner that is integral to maximizing value for the Debtors’ estates.

Pursuant to the Consulting Agreement and subject to the Court’s approval, the Consultant will serve as the exclusive consultant to the Debtors in connection with the Sales. Entering into the Consulting Agreement will allow the Debtors to utilize the logistical capabilities, experience, and resources of the Consultant in performing large-scale liquidations in a format that allows the Debtors to retain control over the sale process… The Debtors seek approval of streamlined procedures (i.e., the Store Closing Procedures) to sell the Store Closure Assets, in each case free and clear of liens, claims, and encumbrances. The Debtors also seek approval of the Store Closing Procedures to provide newspapers and other advertising media in which the Sales may be advertised with comfort that the Debtors are conducting the Sales in compliance with applicable law and with the Court’s approval. The Debtors seek approval of the Store Closing Procedures in light of the need to commence the Sales and Store Closures associated with the Designated Closing Stores during the approaching traditionally high-volume season.”

Consulting Fees

The consulting agreement provides for the following fees:

  • Pre-Sale Services Fee. The Debtors shall pay Consultant a fee equal to $20,000 per week (“Pre-Sale Fee”) from execution of the Consulting Agreement through the Sale Commencement Date.
  • Base Consulting Fee. The Debtors shall pay to Consultant, from Gross Sales, a consulting fee in an amount equal to one and one-half percent (1.50%) of the Gross Sales at all of the Closing Locations (including any Additional Designated Closing Location(s).
  • Discretionary Fee Enhancement. In consideration of Consultant achieving results that are satisfactory to the Debtors, Consultant may, at its option, request that the Debtors approve an enhancement of the Base Consulting Fee in an amount up to one-half percent (0.50%) of the Gross Sales at all of the Closing Locations.
  • FF&E Disposition Fee. With respect to furniture, fixtures and equipment owned by the Debtors and located at the Closing Locations (collectively, the “FF&E”), Consultant shall sell the FF&E in the Closing Locations for the Debtors’ benefit. In consideration of providing such services, Consultant shall retain 15.0% of the gross receipts (net only of applicable sales taxes) from all sales or other dispositions of FF&E (the “FF&E Fee”). 

About the Debtors

Founded in 1984, Forever 21, Inc., headquartered in Los Angeles, California, is a fast fashion retailer of women’s, men’s and kids clothing and accessories and is known for offering the hottest, most current fashion trends at a great value to consumers. Forever 21 delivers a curated assortment of new merchandise brought in daily. 

As of the Petition Date, the Debtors operate 549 stores across the United States, and 251 stores are operated internationally by non-Debtor affiliates. Of the 251 international stores, 181 are owned and operated exclusively by the non-Debtor affiliates, 54 are franchises, and 16 are operated as joint ventures. The Debtors also maintain a substantial online presence, with their e-commerce platform accounting for approximately 16 percent of all sales. In addition to the 534 stores operated under the Forever 21 brand, the Debtors formed a beauty and wellness brand, Riley Rose, in 2017, which operates 15 stores in the United States.

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The post Forever 21, Inc. – Seeks Authority to Close Up to 178 Under-Performing Stores Now (98 More Going Forward), Looks to Pressure Landlords into Lease Renegotiations appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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