‘They played us’: Forever 21 vendors scorn retailer’s bankruptcy

When Forever 21’s US operator asked for a discount of as much as 50% on a shipment from Kyuseung Ahn’s Seoul-based activewear supplier Leukon Inc., Ahn agreed to the American fast-fashion chain’s demands. For Ahn, it was business as usual: the goods were delivered and the two were exchanging emails on March 14. 

Two days later, the Forever 21 operator filed for bankruptcy in the US.

Ahn is among a number of vendors that are now alleging Forever 21’s US operator asked for discounts on orders and took delivery of shipments shortly before filing for bankruptcy, without disclosing their plan to reorganize. A group of unsecured creditors, all of whom have $433 million of claims against the operator, have alleged in court filings that these suppliers should have been entitled to full payment under US bankruptcy code.

It’s not the first time a Forever 21 bankruptcy has hurt vendors, some of whom have come to rely on the company for business. After its first filing, suppliers and others owed payments lost out on millions. Many vendors are also facing steeper financial pressure now thanks to President Donald Trump’s sweeping tariffs, which have forced many US businesses to consider reworking their supply chains.

A representative for Forever 21 declined to comment.

For retailers, taking shipments right up until bankruptcy can help load up inventory and boost proceeds from liquidation sales. But suppliers can be hurt in the process.

While vendors are entitled to a priority status on their claim for the value of goods received by a debtor within 20 days of its bankruptcy filing, senior lenders still come first. If a retailer’s going-out-of-business sale doesn’t raise enough money to repay them, the suppliers who helped stock the stores get nothing. 

In Forever 21’s case, secured creditors stand to recover just 3% of their claims, according to court documents.

“This is the oldest trick in the book,” said bankruptcy attorney Christopher Simon at law firm Cross and Simon. “Borrowers build up their inventory, which is their lenders’ collateral, and then that collateral is sold for the benefit of the secured lender first in every case.”

“They are fattening the cow before the slaughter,” he said. “The folks who supply that feed sometimes don’t get paid.”

Ahn has filed a roughly $10.2 million claim against the Forever 21 operator, according to court documents. The retailer still owes him payments for goods received in September, he said.

“They should have repaid the old debt first, which is customary in the industry. They must have known the day when they were going to file for bankruptcy while asking us to cut the deal,” Ahn said. “We were loyal to them until the last moment. But they played us.”

Two China-based vendors interviewed by Bloomberg News, who asked not to be identified discussing private information, experienced a similar course of events to Ahn.

General creditors “are set up to get absolutely smoked by this bankruptcy” and the unsecured creditor committee is “going to do everything in its power” to test and improve the result, Justin Alberto, an attorney for the committee, said during a court hearing this month.

However, the Forever 21 operator’s $1.6 billion in funded debt is making it unlikely vendors will see anything, the group of creditors has said.

In January, vendors got an email from Barbara Fevelo-Hoad, the chief sourcing officer for Forever 21 parent Sparc, announcing JCPenney was acquiring Sparc to create Catalyst Brands. She said the deal would allow for more investment in the brands.

“Please know that in the near term, we expect business to continue as usual,” Fevelo-Hoad wrote in the email, according to a copy seen by Bloomberg News.

The group of unsecured creditors said it’s investigating the tie-up and has alleged the deal “joined and obligated” Forever 21 and certain affiliates to pay JCPenney’s existing debt. 

Forever 21’s board has determined it has no “colorable or valuable claims” against Authentic Brands Group and Simon Property Group, which controlled Sparc along with fast-fashion powerhouse Shein, according to a March court filing. The retailer had tapped law firm Young Conaway Stargatt & Taylor to review the JCPenney acquisition and other transactions involving Simon and Authentic, which owns the Forever 21 brand.

A representative for Authentic declined to comment. Representatives for Simon and Catalyst Brands didn’t immediately provide a comment.

Many vendors who are owed money no longer have confidence in the large financial backers that rescued the Forever 21’s US operator after its first bankruptcy. Since then, the company’s funded debt has ballooned from $230 million to the $1.6 billion it had when it filed to reorganize in March, court documents show. 

“We really believed in Forever 21’s future when it was bought out by Sparc because we thought Simon and Authentic Brands were reputable companies that we could trust,” Ahn said. “I still can’t believe a large American company like Forever 21 just destroyed its own credibility overnight.”