Forever 21 requests rent reductions, facing financial difficulties

Forever 21 is asking landlords for a rent reduction as the former fast fashion player's sales decline and it struggles to keep pace with savvier competitors, CNBC has learned.

The retailer, which has more than 380 stores in the United States, has asked some landlords to reduce its rent by up to 50%, people familiar with the matter told CNBC.

Although the company faces financial difficulties, it has not yet hired advisors and does not plan to file a second bankruptcy petition, the sources said. It is working to restructure its many leases so it can reduce costs, they said.

Forever 21 is facing a series of problems that have long weighed on its business. It operates in the increasingly saturated fast fashion market, the sources said. They also added that the retailer was struggling to manage inventory and understand and respond to its consumers.

The retailer's struggles come after it filed for bankruptcy protection in 2019 and was subsequently bought by a consortium including brand management company Authentic Brands Group and owners Simon Property Group and Brookfield Property Partners.

When the company filed for bankruptcy protection, it had more than 800 locations worldwide.

Like many retailers, Forever 21's massive store footprint strained its balance sheet when it first filed for bankruptcy. The retailer expanded too quickly during its growth phase, leaving it unable to invest in its supply chain and respond quickly to changing trends.

Closing hundreds of stores after filing for bankruptcy hasn't solved its problems.

Forever 21's financial situation has also hurt the performance of its operator Sparc Group, the joint venture that includes Authentic, Simon and, since last summer, China-linked fast fashion giant Shein. Sparc manages the operations of Forever 21, as well as several other formerly bankrupt retailers, including Aeropostale, Brooks Brothers and Lucky Brand.

Sparc declined to comment to CNBC. Simon did not respond to a request for comment.

Sparc has been reviewing its budgets and facing its own financial challenges, people familiar with the matter said.

Many of Sparc's challenges stem from the difficulty of merging many legacy brands and trying to centralize their teams, technology, marketing, e-commerce, sourcing and supply chains, one of the sources said. It also faces the problem of managing brands that have been operating for a long time mainly in shopping centers.

As part of the partnership between the two retailers, Shein will design, manufacture and distribute a line of Forever 21 co-branded clothing and accessories that will be sold primarily on Shein's website. Forever 21 also hosted Shein pop-up stores and began accepting Shein returns, both of which drove positive foot traffic to Forever 21 stores, one of the people said.