A bid by two big mall owners to keep bankrupt Forever 21 Inc. afloat through an acquisition makes sense in the current state of the shopping center industry, which is being challenged by online competition and changing tastes among shoppers.
A consortium that includes two of Forever 21’s largest landlords made an offer to buy the Los Angeles retailer for $81 million, a small fraction of what the global fast-fashion pioneer was once worth.
Simon Property Group Inc., Brookfield Property Partners and Authentic Brands Group want to buy nearly all of Forever 21’s assets, according to documents filed Sunday in U.S. Bankruptcy Court. The retailer filed for protection from its creditors in September, detailing a preliminary plan to close about 350 of its 800 stores — including 178, or one-third, of its 549 U.S. locations.
Mall owners generally stay out of the business of operating stores, but the strategy has gained appeal as more retailers struggle in the face of online competition and changing tastes among young shoppers, who are interested in thrift store finds and sustainable fashion.
Simon and mall owner General Growth Properties, which is now owned by Brookfield Property Partners, teamed up in 2016 to rescue teen apparel retailer Aeropostale, which was in bankruptcy. Simon Chief Executive David Simon said last year that the company was looking at other potential bankrupt retailers.
Well-stocked stores with the lights on are more appealing than boarded-up storefronts to mall visitors, even if they don’t step inside of them. And the people who do shop at Forever 21 may also shop elsewhere.
“Consumer traffic is critical to malls,” said real estate broker Scott Burns, who leads the retail property team in Southern California for brokerage JLL. “Maintaining occupancy is obviously important.”
And if Forever 21 were to go away, it might be difficult for mall owners to find replacements.
“There is a gap of quality soft good product out there,” Burns said. “Very few retailers are expanding in that market right now and there is a lack of alternative uses” for their space.
“Forever 21 has a strong following and it should be around,” he said. “It has phenomenal brand recognition and consumer base.”
Mark Hunter, managing director leading CBRE’s mall management and leasing business in the Americas, told the Associated Press that another reason landlords want to keep occupancy high at their malls is that they don’t want to trigger a clause that lets other retailers at the shopping center ask for a lower rent or eventually get out of a lease. Still, Simon and others remain “strategic” regarding which retailer to buy.
Simon malls in Southern California with Forever 21 stores include Del Amo Fashion Center, Brea Mall, the Outlets at Orange, Ontario Mills and Camarillo Premium Outlets.
The consortium’s so-called stalking horse agreement sets a minimum price for a proposed auction later this month. If no other bidders step forward, the consortium would be declared the winner.
Plans envision an auction process with a sale hearing requested for Tuesday and approval of the winner no later than Feb. 11.
The buyers have the right to close and wind down certain stores and conduct going-out-of-business sales, according to the court filing. They’re also entitled to a $4.65-million break-up fee under some circumstances if the sale isn’t completed.
Forever 21 had been in “substantial, round-the-clock negotiations” about the bid, the company said previously in documents filed last week.
Bloomberg previously reported that Authentic Brands Group and Simon Property Group were mulling a plan to acquire the retail chain.
Forever 21 was talking about selling a stake to Simon and its other largest landlord, Brookfield Property Partners LP, before it filed for bankruptcy in September, Bloomberg previously reported. Negotiations broke down and the company had to seek court protection without a reorganization plan in place.
The chain has since struggled to raise money to exit bankruptcy, with potential lenders and buyers balking because of poor sales and the founding Chang family’s insistence on maintaining control. Forever 21 recently told suppliers in a letter reviewed by Bloomberg that it’s short on cash and that it could be forced to liquidate if a buyer doesn’t emerge.
The Associated Press and Bloomberg were used in compiling this report.