Is Forever 21 a wise investment for its new mall landlord owners?
Mall operators Simon Property Group and Brookfield Property Partners, along with the licensing firm Authentic Brands Group, have made a deal to acquire virtually all of Forever 21’s assets for $81 million just months after the fast fashion retail chain filed for Chapter 11 bankruptcy protection.
Forever 21 had previously announced plans to close around 350 of its roughly 800 stores around the world, including 178 of its 549 locations in the U.S., as part of the bankruptcy process.
The move by Simon and Brookfield is the second time in recent years that the two mall operators have joined together to try and save a retailer important to their facilities. In 2016, Simon and General Growth Properties (later acquired by Brookfield) were part of a $243 million bid to acquire Aeropostale’s assets. In that scenario, the mall operators kept 229 stores operating.
Last July, Simon CEO David Simon told analysts that his company was open to additional investments in retail with the right partners in “distress situations.” During the call, Mr. Simon said his company had “made a ton of money in Aero” and had positive experiences working with Brookfield and Authentic Brands Group in the past.
Many link Forever 21’s problems in recent years to a decision by the chain’s management about a decade ago to rapidly expand and to do so in larger boxes. At the time, this ran in direct contrast to the retail industry’s trend of opening smaller stores. The chain, whose original store measured 900-square-feet and which gained in popularity with footprints of between 10,000- and 20,000-square-feet, began opening stores that measured 85,000- and 90,000-square-feet.
- Mall Owners Among Group Bidding $81 Million for Forever 21 – The Associated Press/The New York Times
- Forever 21’s landlords offer a cut rate of $81 million for the L.A. retailer – Los Angeles Times
- Can Forever 21 come back from bankruptcy? – RetailWire
- Should Simon Property Group bail out (invest in) more retail tenants? – RetailWire
- Simon Property Group, Inc CEO David Simon on Q2 2019 Results (Earnings Call Transcript) – Seeking Alpha
- Why did mall landlords step in to save Aeropostale? – RetailWire
- Forever 21 Thinks Big – RetailWire
DISCUSSION QUESTIONS: How likely is Forever 21 to be successful under ownership by Simon Property Group, Brookfield Partners and Authentic Brands? What will the chain have to do differently to succeed going forward?