Tag: bankruptcy

Forever 21 has filed for bankruptcy

By Cortney Moore for FOX Business

Forever 21 is about to start aging.

The iconic youth-focused fashion retailer announced to its customers on Monday that it indeed is filing for bankruptcy despite its attempts to quash rumors about the business development in a newsletter 10 days prior. Under the U.S. Bankruptcy Code’s chapter 11, Forever 21 will remain open while it “takes positive steps to reorganize the business.”

Up to 178 stores will close throughout the U.S.—which is sure to hurt thousands of employees who rely on the retailer for a source of income. Operations are also said to halt in 40 countries.

Forever 21 sent out a newsletter to customers on Sept. 20, telling them not to believe the “misinformed” bankruptcy rumors.

For some devoted shoppers, the announcement comes as a shock. However, a number of brick and mortar stores have struggled to keep money flowing with the rise of ecommerce juggernauts like Amazon providing the convenience of speedy shipping.

Fashion outlets that have shuttered a part of their business or have gone out of business completely include other notable mall staples like Payless, Kohl’s, Dressbarn, Topshop, Ralph Lauren, Lord & Taylor and more.

Forever 21, which was founded by Korean-born American husband and wife Do Won and Jin Sook Chang in 1981, grew to amass a network of over 800 stores while becoming multi-billion dollar company. Despite this, the trendy fashion chain that covertly imprints bible verses regarding everlasting life on its shopping bags, couldn’t be spared from what some have dubbed the “retail apocalypse.”

Here are five reasons that may have contributed to Forever 21’s downfall.

1. Rapid expansion

In Forever 21’s “About Us” section of their website, it acknowledged that it was the fifth largest specialty retailer in the U.S. and was aiming to “become an $8 billion company by 2017 and open 600 stores in the next three years.” However, just like with any other business that aggressively expands, there is sure to be a whole lot of debt that comes with it.

The company also revealed that the average size of a Forever 21 store is 38,000 square feet while the largest is 162,000 square feet. A market study that observed the average rent paid by square foot in the U.S. for industrial space found that businesses classified under “special purpose” paid $6.50 per square foot. If that figure holds true for today’s standards, a 38,000-square-foot Forever 21 would cost about $247,000 for rent alone. Similarly, a 162,000-square-foot location would cost an astounding $1,053,000.

2. Bad publicity
According to a report by the social media analysis website Sprout Social, nine out of ten customers will stop purchasing from brands that lack transparency. These findings are a detriment to Forever 21 since the company has been embroiled in back-to-back lawsuits for trademark and copyright infringement for years.

Whether from big household name designers to small indie brands, Forever 21 has made a knockoff version for customer purchase. Gucci, Adidas and Puma are just a few big dogs that have attempted a courtroom battle with Forever 21. Pop singer Ariana Grande has filed a $10 million lawsuit of her own over the value brand “stealing her” image and likeness.

3. Fast fashion and the competition
Forever 21 might be known for their quick-turning duplications, but they are not alone in the fast fashion world. Competitors such as H&M and Zara have vied for the same consumer base that wants trendy clothing at an affordable or low-cost price point. Popular London-based ecommerce brands like ASOS and Pretty Little Thing have also taken a swipe at profits with their lucrative celebrity collaborations.

The Instagram famous Los Angeles-based brand Fashion Nova has also given Forever 21 a run for its money with shameless knockoff business strategy that churns out replicated designs in less than 24 hours.

4. Shifting consumers
Conversely, there is a buying base that opposes everything fast fashion stands for. These shoppers are generally concerned for the environment, whether it be through minimizing fabric waste or not supporting an industry that has brought on harsh working conditions. This desire for sustainable fair trade has allowed the secondhand clothing market to grow to an estimated $28 billion worldwide, according to a consumer survey from analytics aggregator Statista.

The call for body positivity in the fashion industry has also impacted Forever 21 despite the store having a dedicated plus size and curvy sections in U.S. stores. Outside the small pickings these departments have, Forever 21 highlights its ultra-thin models more frequently—which may have alienated its full-figured base that is said to have a buying power of about $46.4-billion according to business management consultants at Coresight Research.

Forever 21’s shipping of free diet bars over the summer also didn’t help the brand’s image.

5. Unfocused inventory
Although majority of Forever 21 stores offer various selections, the brand appears to have extended its reach too far. With its other lines like XXI Forever, For Love 21 and Heritage 1981, the retail store has carried a mixed bag of styles that are both overwhelming and in conflict with shoppers’ inner Marie Kondo call for minimalism.

The store has also dabbled in creating a home décor, tech accessory and cosmetics line that is cheap in price but lacking in durability. Forever 21’s sister brand, Riley Rose, which sells third-party beauty products never took off the way the company hoped. Even top beauty retailer Ulta is struggling with a shifting market that prizes skincare over makeup.

A January report in Business of Fashion said Forever 21 had its sights on doubling the number of Riley Rose stores. That doesn’t appear to be happening while the business reorganises its strategy under bankruptcy.

Government runs out of money

Pay insecurity is on the rise amongst state-owned enterprises and municipalities as it seems the government is running out of money.

A recent Business Tech article illustrates this, listing the likes of Denel, Metrorail, Prasa and the SABC as not having paid staff on time.

Municipalities in trouble

  • 30 municipalities in the country have not paid employees due to lack of funds
  • Employees at the Amahlati municipality in the Eastern Cape were last paid in April
  • The latest report from the auditor general showed a shocking decline in the state of the country’s municipalities over the last year
  • 257 municipalities and 21 municipal entities were audited for the 2017-18 financial year
  • 63 municipalities regressed
  • 22 improved improved
  • Only 18 municipalities obtained a clean audit by producing quality financial statements and performance reports, as well as complying with all key legislation

Big bailouts

A large portion of South Africa’s state companies are currently heavily reliant on the state for bailouts.

  • The SABC is currently waiting on government approval of a R3.2-billion bailout
  • Eskom has a R69-billion guaranteed pledge from the government coming in over the next three years
  • SAA needed over R21-billion from government to fully implement its turnaround strategy, but had to turn to private funding after the government could not meet its needs.

Day Zero looms for the SABC

SABC, the embattled state-owned broadcaster, is facing a serious financial crisis. At the end of May it was forced to choose between paying salaries and paying municipal bills – and it now owes the City of Johannesburg more than R13.5-million.

According to MyBroadband, apart from its municipal bills, the SABC owes Sentech R317-million and MultiChoice division SuperSport R208-million.

The SABC is now looking for a R3.2-billion government guarantee to help it to raise money from lenders to stay afloat.

Massive debts
During an interview on SABC, the company’s chief financial officer, Yolandi van Biljon, warned that Day Zero (leading to total blackout) could happen “tomorrow”.

The SOE has debt of approximately R1.8-billion. If debtors stop supporting them, the broadcaster could go under.

The ten institutions owed money by the SABC could call in their payments at any time.

“I think Day Zero can happen tomorrow. It depends if one of these big partners are unable to support us financially,” says Van Biljon.

She warned that the SABC can also be forced to switch off its signal and distribution network or its critical infrastructure can fail, which would lead to a total blackout.

Is this the end of SAA?

By Jeanine Walker for SA Promo Magazine

“The end of the line is coming soon,” economist Mike Schussler told the Sunday Times over the weekend.

“We are in a deep crisis, we cannot save every state owned entity (SOE) and I think at this point in time Eskom is much more important than SAA”

His comments come at a time when SAA requested another R4 billion from the government in an attempt to keep the struggling airline afloat. BusinessTech reports the airline continues to operate at a loss and has a R3.5-billion short-term loan, which will be depleted at the end of this month (June 2019), along with a long-term R9.2-billion loan.

SAA board member Martin Kingston is quoted as saying that the board was worried about the state of the economy and how it may impact the government’s decision to bail out the airline.

Schussler says the airline is “indebted to the nth degree”, and that it probably wouldn’t survive.

Meanwhile labour union Solidarity says SAA needs urgent, radical intervention from outside. Responding to the resignation of SAA CEO, Vuyani Jarana, last week, Connie Mulder, head of Solidarity’s Research Institute says since President Cyril Ramaphosa’s election a spirit of excitement prevailed about a new beginning. “However, it now seems as if the faces on the pictures may have changed but the facts on the ground have not. Mr Jarana’s resignation leaves Solidarity with no choice but to update its court papers for business rescue, making a final end to the cadre merry-go-round at the SAA.”

SAA ‘is unsalvageable’

He says he finds its extremely disconcerting that in his letter of resignation Mr Jarana cites all the challenges Solidarity had highlighted in 2018 as the reasons for the airline’s failure. “This is proof that while the airline is state-owned it is unsalvageable, regardless of who is at its helm. In 2018 Solidarity reached an agreement with Mr Jarana in terms of which he would give us regular feedback on progress being made with the turnaround strategy. It is now clear to us that this strategy is not going to be implemented for as long as the SAA is owned by the state,” Mulder added.

The SAA’s status as a going concern is still in jeopardy, and it would appear as if little progress has been made as far the implementation of the turnaround strategy is concerned.

“To give a new CEO another chance, yet again, will be irresponsible given the history of the SAA,” Mulder added.

Solidarity considers the SAA business rescue application to be a precedent-creating case of vital importance, not only for the SAA, but also for taking back other, bigger state-owned enterprises from the hands of the state.

“To sit back now and let the SAA continue with another bailout and a new face will be akin to treating a patient who needs heart bypass surgery with a Panado. The SAA and other state-owned enterprises need radical, external intervention, and Solidarity will provide it,” Mulder concluded.

When Jarana resigned he said he would vacate the post on 31 August. However, the Sunday Times reported that he would now vacate his position immediately and would be succeeded by Zukisa “Zuks” Ramasia as acting CEO of SAA.

By Mia Lindeque for EWN

The South African Broadcasting Corporation (SABC) says that it is urgently dealing with its bank to sort out a technical glitch which resulted in staff not being paid their salaries on time.

Frustrated employees contacted Eyewitness News in a panic on Tuesday, complaining that they were not warned in advance.

This frenzy was partly triggered by concerns raised in Parliament by the SABC management painting a bleak picture of not being able to pay salaries in the future if the financial crisis at the public broadcaster doesn’t change.

The broadcaster’s Neo Momodu says that there was a technical problem on the bank’s side and has assured staff that they will be paid before the end of the day.

She’s also clarified that the SABC made all the necessary payments on time.

“We are handling the matter with the bank and we are sure that it will reflect in their accounts on 29 January. We’ve paid the salaries like we always do to the necessary banks so that they reflect with our staff. We are not in control of the cash. As far we are concerned as management, the salaries should have reflected in the staff’s bank accounts.”

Source: MyBroadband

Many poor South African municipalities are drowning in debt to Eskom due to a culture of nonpayment by consumers, according to a report in the Sunday Times.

Maluti-a-Phofung, one of the poorest municipalities in the country situated in the foothills of the Drakensberg in the Free State, owes Eskom close to R3-billion, the report stated.

Co-operative governance minister Zweli Mkhize said the municipality was the worst electricity payments defaulter in the country, criticising the lack of payment by consumers and problems with ageing infrastructure.

Mkhize said that political instability in poor municipalities paired with a failure to perform basic legislative responsibilities has lead to the collapse of service delivery.

“Municipalities which enjoy political stability tend to be characterised by a more settled and mature political and administrative leadership,” his report stated.

Uplifting poor municipalities
In his presentation to the ANC’s national executive committee, Mkhize said he had appointed an advisory panel to find a solution to the growing debt of these poor municipalities.

Recommendations included a strong provision of basic services and a concerted effort to promote payment among residents in these areas.

Mkhize’s report also raised concerns of inadequate skills and political infighting within municipal councils, which he said weakens the ability to perform legislative tasks and creates an environment in which it becomes easier to commit fraud.

Following the loss of R1.5 billion in municipal funds invested in VBS Mutual Bank, Mkhize said municipalities should be transparent about planned capital projects and find alternatives to preserve financial stability.

The total debt owed to Eskom by South African municipalities has reached R14 billion, with delivery of services such as sewage and water also suffering in affected municipalities.

The energy regulator recently announced that Eskom plans to recoup the vast amounts of money lost in unbudgeted costs incurred in the 2014-2017 financial years.

The utility is able to raise power prices by 4.4% to regain the expenses through its regulatory clearing account, with standard tariff customers bearing the brunt of the R32.7 billion it aims to recover.

Eskom is also said to be affected by a coal crisis, where at least four of Eskom’s 15 coal-fired power stations had less than 10 days of coal on hand in September.

By Roy Cokayne for IOL

The South African Bureau of Standards (SABS) has been placed under administration.

This is after Trade and Industry Minister Rob Davies last month removed the entire SABS board because he had lost faith in its ability to effectively manage the bureau.

In May this year, Davies confirmed that the bureau was bleeding customers and potential revenue and in March this year he instructed its management to urgently oversee a detailed process to develop a turnaround strategy.

Davies on Friday announced the appointment of three SABS co-administrators, SABS group operating officer Jodi Scholtz, the deputy director-general of the Industrial Development Division at the Department of Trade and Industry (dti) Garth Strachan, and the chief director of technical infrastructure institutions at the dti, Tshenge Demana.

He said the co-administrators were charged with producing a diagnostic report and turnaround action plan.

They hade been appointed for the period from July 2 this year until January 30 next year and in terms of the provisions of the Public Finance Management Act, they had been given all powers and duties necessary or incidental for the proper functioning of the SABS. Sidwell Medupe, a spokesperson for the dti, on Friday confirmed that SABS chief executive Boni Mehlomakulu, who as chief executive was a member of the bureau’s board, had been dismissed as a board member, along with the other board members. Medupe also confirmed that Mehlomakulu now reported to and took instructions from the co-administrators.

The SABS last year reported a R44.3 million loss for its 2016/17 financial year.

The SABS has been in the spotlight since it emerged that it irregularly certified substandard coal by Guptalinked mines to facilitate the suspension imposed by Eskom on another supplier to pave the way for the Gupta-owned Tegeta contract to go ahead.

However, the problems at the SABS go much deeper than that and it has received widespread criticism in the past few years from many industries about the level of service these industries were receiving from the bureau.

Business Report reported in January last year that South Africa’s coatings industry claimed the SABS’s paint testing laboratories appeared to be non-operational.

The Master Chemical Blenders Association, which collectively represents more than 50 companies, last year told Business Report that their members were unable to get their compliance certificates from the SABS, despite interacting directly with Mehlomakulu and that the SABS did not have testing capability and that many were possibly no longer compliant.

The SA National Accreditation System (Sanas), which is responsible for accrediting industry bodies and laboratories that conduct testing and is recognised through legislation as the only national body responsible for carrying out accreditation, suspended the certification programmes of the SABS, but subsequently lifted this suspension in March 2016, claiming the suspension was of an administrative nature.

Complaints Many other industries have complained to Business Report about the level of service provided by the SABS. Davies last month confirmed that he had received many complaints from both big and small business, including complaints from black industrial players, that the government was working hard to expand, about the lack of service from the SABS.

Davies confirmed in response to a parliamentary question in May that the SABS had lost 1 052 customers since its 2015/16 financial year, including 401 customers since April this year, resulting in a loss of revenue to the bureau of almost R50m in this period.

In addition, the SABS had to refund 41 customers a total of R1.03m in this period.

Davies said the peak in customer losses was in the SABS’s 2016/17 financial year, due to customers cancelling their permits and certificates with the SABS.

The reasons for the cancellations included the suspension of SABS certification programmes by Sanas; customers moving to competitors; and expired certificates and permits.

Toys R Us files for bankruptcy

Toys R Us has filed for chapter 11 bankruptcy protection, the company announced Monday.

The bankruptcy filing helps the Wayne New Jersey-based toy retailer relieve itself of the debt left over from its $6.6 billion acquisition by Kohlberg Kravis Roberts, Bain Capital Partners and real estate investment trust Vornado Realty Trust in a 2005 deal valued at $6.6 billion.

The retailer has $4.9 billion in debt, $400-million of which has interest payments due in 2018 and $1.7 billion of which is due in 2019.

“Today marks the dawn of a new era at Toys”R”Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way,” said Dave Brandon, the company’s chairman and CEO, said in a release announcing the filing.

“We are confident that these are the right steps to ensure that the iconic Toys”R”Us and Babies”R”Us brands live on for many generations,” he adds.

The toy seller also intends to seek protection in parallel proceedings for its Canadian subsidiary.

The company said it will continue to operate as usual its approximately 1,600 Toy R Us and Babies R Us stores around the world. The company’s operations outside of the U.S. and Canada are not part of the protections proceedings, it said.

The retailer said that it has already received a commitment from some lenders, including a JPMorgan-led syndicate, for over $3-billion in debtor-in-possession financing. Although that’s subject to court approval, Toys R Us said it “is expected to immediately improve the Company’s financial health and support its ongoing operations during the
court-supervised process.”

Restructuring that debt would give Toys R Us the financial flexibility to continue its turnaround. Initiatives include improving its website and revamping its Babies R Us business, by focusing on items like cribs that are less likely than diapers to be sold on Amazon.

A bankruptcy filing will also help the retailer manage the the crucial holiday season and give vendors like Mattel and Hasbro clarity into its long-term plans.

For its owners, the bankruptcy filing ends a chapter that started at a time when private equity dove into the retail industry, buoyed by low interest rates and the attraction of recognizable names. That flurry has come back to haunt many, as debt burdens have made it difficult for retailers to make the necessary investments to adjust to the rapidly changing retail industry.

Private equity-backed Payless ShoeSource and Gymboree are among those that have filed for bankruptcy over the past two years.

For Vornado, the deal was a bet on the value of Toys R Us’s real estate. It came just a year after K-Mart and Sears merged in an $11-billion deal based on the idea that combining the real estate value of the struggling stores would strengthen both.

Many retailers have over the past year shed their real estate footprint, finding the U.S. store-base too vast and too out of sync with the many American shoppers that no longer go to the mall.

By Lauren Hirsh for CNBC

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