Teen retailer Forever 21 turns to outside investors for $150M loan
Teen fashion retailer Forever 21 Inc is not seeing enough growth and is turning to Wells Fargo & Co. and TPG for a $150-million-loan aide.
For over a dozen years, this fast-growing retail store has won the hearts of young shoppers and wiped out rivals with its trendy fashion and affordable prices, with $7.90 jeans and $8.90 cardigans. But lately, there are reports that the company is struggling to fill productivity.
Now, it is in talks with Wells Fargo & Co. and TPG to avail a $150 million loan. It is a rarity among privately held companies to go to outside investors for filling its balance sheet. Though it is still a profitable company, Forever 21 has struggled due to the slowdown in Europe. Another obstacle is its push to more spacious stores, which adversely affected its profitability.
Forever 21 predicted that its sales would increase 10% in 2015 to $4.7 billion. However, there are reports that the company's sales and profit have lessened. RBC Capital Markets' analyst Brian Tunick estimates that the fashion retail store's sales have been negative for the last 12 months.
Some of the major reasons for the slump in sales and profit are the fast-changing tastes of teens and shoppers looking for better deals. The fickle teens prefer to come up with their unique look rather than buying their outfit from big chains, which will definitely have pairs.
Some other retail stores that suffered this premonition include Abercrombie & Fitch Co., Aeropostale Inc., and American Eagle Outfitters Inc. Some companies even resolved to file for bankruptcy protection. These retail stores are Wet Seal Inc. and Delia's Inc.
Forever 21 may have expanded to new categories, like plus sizes, intimate apparel, accessories, and products for older shoppers, but it has still yet made its larger stores productive. It opened 90,000-square-foot to 127,000-square-foot stores from various areas.
This space is triple the size of their previous stores. This seems to be one of the major factors that have been putting too much strain on the company.