ABG, Simon, Brookfield Finalize Deal to Buy Forever 21
The plan is to keep all 448 stores in the U.S. open and expand the brand around the world.
Authentic Brands Group has snagged another high-profile prize: Forever 21.
On Wednesday, the company said it was successful in acquiring the bankrupt fast-fashion retailer in partnership with Simon Property Group and Brookfield Property Partners. Under the terms of the deal, ABG and Simon will each own 37.5 percent and Brookfield will own 25 percent of the intellectual property and operating businesses.
The court approved the ABG-Simon-Brookfield team’s $81.1 million stalking horse bid, but the actual purchase value is arguably much higher when factoring in the liabilities that the buyers had agreed to assume. In addition to putting up the purchase price, Forever 21’s advisers told the court last week that the buyer group would provide some $20 million in payments for goods Forever 21 has accepted in recent weeks, as well as up to an additional $53 million for other goods it is bringing in. The buyers would also assume what the creditors’ committee has estimated would be “hundreds of millions of dollars” worth of purchase orders for goods that are in transit or which haven’t left vendors’ warehouses. The buyers had also said they would pay Forever 21’s rent for February.
“The real purchase price is around $300 million,” said Jamie Salter, founder, chairman and chief executive officer of ABG. “It’s an operating business so we’re getting working capital from it.”
He said the hope is to keep all 448 stores in the U.S. open along with the “couple hundred” more that the retailer had operated around the globe. “We’re fairly confident that the landlords will be supportive of our business plan,” Salter added. “If they are, the stores will remain open. If they’re not, they won’t.”
That plan centers around a few key points, notably the improvement of systems, sourcing and just an overall tightening of operations. “They [former management] expanded the business too fast, but we will capitalize it properly,” he said. “We don’t put pressure on a business financially but focus on four-wall profitability.”
Salter said ABG is on the verge of hiring a “great ceo” to oversee the business out of the company’s existing Los Angeles headquarters, which will be retained. “We’ve narrowed it down to three people, all great and very capable who have run similar platforms in the past.” A new senior management team will also be installed to replace the founders of the business, Jin Sook and Do Won Chang. The Changs founded the company in 1994 in L.A., and at its peak, the business had sales of $4.1 billion, employed 43,000 people and had operations in 57 countries.
“We’re really going to be building an upper management team that understands systems,” he said, adding that the infrastructure in place right now is lacking. “They have $2.5 billion in global business and do close to half a billion dollars with the systems they have.” With a major upgrade, the sky’s the limit, Salter believes.
“We’re pretty confident in our ability to fix what was wrong,” he added.
But the merchandise mix will be substantially different. “There are 1,800 vendors,” Salter said. “Does that number need to be less than 100? I don’t know, but it’s going to be substantially reduced.”
Improving turn is also a key component of the plan, he said, along with a focus on sustainability, a hot-button issue with the company’s young consumer base.
Salter believes there are opportunities to further expand Forever 21’s reach in several international markets including South America, Western and Eastern Europe, China, South East Asia, the Middle East and India. In fact, ABG is close to signing a partner in Latin America and is “on the five-yard line” on finalizing deals in both Mexico and Brazil where it’s down to two parties in each of those countries, he said. “They have such a large footprint and the ability to move a lot of units around the globe,” Salter said of Forever 21.
Overall, Salter believes Forever 21 “is a powerful retail brand with incredible consumer reach and a wealth of untapped potential. We’re looking forward to working with the Forever 21 team and our global partners. Together, we’ll revitalize the brand’s core business and connect with audiences around the world through new product offerings and experiences.”
He said Forever 21 has a “loyal, young Gen Z customer, and that’s a tough customer to please. It’s also a customer we want. Most of the brands that ABG has don’t cater to Gen Z, so it’s a white space for us. They’re leaders and trendsetters and have a huge social media base with an enormous amount of data that we can use for our other brands.”
He said Forever 21 will operate under the “same sort of playbook” as ABG’s Aéropostale division “but with different individuals” at the helm. There are no plans at this point to fold it into the Aero OpCo division within ABG, which operates the Aeropostale stores.
“We believe in brick-and-mortar,” Salter said. “If you want to sell a lot of merchandise online, you need brick-and-mortar, and if you want to sell internationally, you need a brick-and-mortar base in the U.S.”
Before Forever 21, ABG’s most recent deal was a $271 million purchase of Barneys New York in November, also in bankruptcy court.
But Salter said the two high-profile retail purchases don’t indicate a change in direction for the brand marketing firm whose other properties include more than 50 brands such as Nautica, Juicy Couture, Neil Lane, Frederick’s of Hollywood, Marilyn Monroe and Hickey Freeman.
In fact, Salter said ABG hopes to further exploit opportunities in the entertainment space. Last May, the company also bought Sports Illustrated for $110 million and is moving to expand the publication into an experiential, entertainment and merchandising brand.
“We want to involve customers in the entertainment and media world and Forever 21 adds value to that,” Salter said.
He also credited his real estate partners, Simon and Brookfield, for pioneering new concepts for their portfolio of shopping malls. “They’re not shopping centers anymore,” he said. “They’re transitioning to an experiential focus,” with Simon adding Life Time fitness gyms to some of its properties, for example. “That’s smart and it drives traffic and experiences. I like what they’re thinking, and if we stay close to them, I feel very confident that we can continue to build great brands with great partners.”
He said entertainment now accounts for 30 percent of ABG’s business while international is another 30 percent. He said he plans to double each of those businesses.
So what other brands is Salter interested in adding to his stable? Although the ABG name has been mentioned as a potential acquirer of everything from Victoria’s Secret to J. Crew, Salter wouldn’t tip his hand. “It could be in music or the character business, or it could be a lifestyle brand,” he said. “The list is robust.”
He said ABG is actually working on three deals right now: two in the entertainment field and one a lifestyle brand. “But I’m not sure which one will be first.”
Salter, who created ABG with Leonard Green & Partners in 2010, has built a business with $12.5 billion in global annual retail sales. But his goal is to nearly triple sales within five years. “We’re on pace to be a $30 billion global company in five years,” he said. “And I feel confident that we’ll get there by focusing on big transactions and big brands with heritage and global appeal.”