(Bloomberg)—Forever 21 Inc. can add a lawsuit to the hurdles it’s trying to overcome as it works to woo investors in time to finance its exit from bankruptcy.
An Alabama mall owner is suing Forever 21, saying it lost millions of dollars leasing space to the retailer based on misleading sales targets.
Forever 21 is accused of misrepresenting sales projections for a store it opened in Allied Development of Alabama’s Eastern Shore shopping mall, promising yearly revenue of at least $6 million but delivering only about $1.6 million its first year in business, according to court documents filed Nov. 22.
In 2017, Allied Development struck a deal with Forever 21 that allowed the apparel retailer to peg its rent payment to its monthly gross sales. The store would turn over 5% of its monthly sales, as well as a bonus of 1% of yearly sales in excess of $7 million, according to the agreement.
But the retailer used false information to back up projections it gave as part of the deal, according to the filing. Forever 21 based the projections on sales at its nearby store in Mobile, Alabama, which it said had generated $6 million in 2017, Allied Development said in the court filings.
That store generated only $2 million in gross sales during 2017, according to the court documents.
Forever 21, No. 116 in the 2019 Digital Commerce 360 Top 1000, is asking the court to dismiss the complaint, according to court papers filed Dec. 26. Allowing it to proceed “could potentially open the floodgates to holders of prepetition claims who are similarly unwilling to wait their turn through the claims reconciliation process.” The retailer also says the filing violates the automatic stay that halts certain actions by creditors when a company files for bankruptcy.
Allied Development is seeking damages of at least $2.1 million to reflect the capital improvements it made to the space as part of its agreement with Forever 21, as well as at least $6 million in punitive damages.
Forever 21 filed for bankruptcy on Sept. 29 with plans to cut at least 178 domestic outlets from its approximately 800 stores, after a disastrous expansion outside the U.S. A pre-trial conference has been scheduled for Jan. 27 in U.S. Bankruptcy Court in Wilmington, Delaware.
Forever 21 is launching this month its renewed international online store to drive growth from consumers in Canada, Asia, Asia-Pacific and Latin America as part of a shift in focus away from physical retail in light of upcoming store closures, the retailer says. It is working with ecommerce specialist Global-e as its cross-border ecommerce technology provider to accelerate this global online expansion, which includes an improved, localized ecommerce experience for international shoppers.
“Ecommerce forms a large chunk of the profitable core of our operations and as part of our new global strategy, Forever 21 will leverage Global-e’s technology to offer international customers an outstanding online experience,” said Alex Ok, president at Forever 21. “With the continued increase in demand from international shoppers for our brand, we recognized that an advanced global online shopping experience is a fundamental part of our future growth.”
Forever 21 will now be able to provide its international customers with an enhanced online shopping experience that is adjusted according to the local market’s characteristics and shoppers’ preferences. This includes supporting 95-plus currencies, more than 150 local and alternative payment methods, tax and duties calculation with an option for real-time prepayment at checkout, localized checkout in 21 languages, a wide choice of shipping methods at attractive rates and an easy returns process.
Forever 21 will be closing most physical stores in Canada, Asia and Europe, but will continue to ship to international customers through its U.S. website at Forever21.com.
“Being able to offer our consumers a sophisticated online experience, tailored to their shopping preferences, wherever they are in the world, is a key priority for us,” said Kevin Diamond, head of global ecommerce at Forever 21.