The past few years have been challenging for retailers, and lingering inflation is largely to blame.
Inflation levels began creeping upward in 2021, when the government made the decision to issue stimulus checks at a time when supply chains were battered.
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Although inflation has cooled more recently, living costs are still high. That’s forced consumers to spend their money more carefully. And as a result of changing habits, a lot of retailers have seen their bottom line impacted.
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More than 7,300 stores ended up closing their doors in 2024, reports CoreLogic. And so far, a number of major retailers have announced closures for 2025.
Several popular retailers have also filed for bankruptcy as a result of sluggish revenue and sales, including several mall mainstays.
In April 2024, Express filed for Chapter 11 and announced plans to shutter roughly 100 locations. And more recently, Forever 21 filed for bankruptcy for the second time, citing stiff competition from budget online retailers.
Popular retailer’s creditors question bad deal before bankruptcy filing.
Image source: Shutterstock
A big change happened prior to bankruptcy
Forever 21 filed for bankruptcy protection in mid-March. But earlier in the year, SPARC Group, Forever 21’s parent company, announced plans to merge with JCPenney.
JCPenney filed for Chapter 11 bankruptcy in May 2020 due to financial distress fueled by the pandemic. The retail giant wasn’t alone in that regard. Stay-at-home orders hurt a lot of retailers by forcing customers out of stores.
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JCPenney has managed to stay operational since emerging from bankruptcy later on in 2020. In early 2025, it announced plans to close a number of stores by mid-year.
The merger with SPARC Group introduced a new organization called Catalyst Brands, which launched with more than $9 billion of revenue, 1,800 store locations, 60,000 employees, and $1 billion of liquidity.
A pre-bankruptcy deal is now being questioned
In the wake of Forever 21’s bankruptcy filing, a committee of unsecured creditors is investigating all deals made by the retailer prior to its Chapter 11 filing in March. And one major deal creditors are focusing on is JCPenney’s acquisition of SPARC Group.
Creditors seem unhappy with the fact that the acquisition obligated Forever 21 and certain affiliates to pay JCPenney’s existing debt. The transaction is being scrutinized as part of a broader written objection to the company’s request to access lenders’ cash.
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The group is opposing terms in the company’s request that would give lenders liens or claims to potential legal actions against Forever 21. Forever 21’s intellectual property, meanwhile, is owned by Authentic Brands Group.
The objection to the SPARC Group and JCPenney merger stems from a fear that unsecured creditors will lose out because Forever 21’s intellectual property assets were sold prior to the company’s Chapter 11 filing.
The creditor group is also claiming that Forever 21’s operator “extracted significant discounts” on goods shipped just before March’s bankruptcy filing, when those claims would otherwise be entitled to full payment under the bankruptcy code. A number of large vendors are reportedly holding onto a sizable amount of Forever 21 inventory that they can’t resell.
More bankruptcies:
Popular restaurant and bar chain files for Chapter 11 bankruptcyPopular athletic shoe chain files for Chapter 11 bankruptcyAward-winning cosmetics brand files for Chapter 11 bankruptcy
Forever 21 is in the process of liquidating all of its U.S. stores. The company disclosed that the outlook for its creditors is bleak, with secured claims potentially being paid at as low a rate as two or three cents on the dollar.
Representatives for the companies involved have not responded to requests for comments on the creditor group’s investigation. But given the abysmally low recovery rate Forever 21 creditors are looking at, it’s not unreasonable to dig deeper into transactions that occurred in the weeks leading up to its Chapter 11 filing.
