Forever 21 owners took $14m loan from children

Move came amid troubled American retailer's global expansion which became money-loser

NEW YORK • As Forever 21's botched international expansion morphed into a money-loser, its owners turned to a funding source less likely to say no: their own children.

The American fast-fashion retailer's founders Chang Jin Sook and Chang Do Won borrowed US$10 million (S$13.8 million) in 2015 from the trusts for their adult daughters, Ms Linda Chang and Ms Esther Chang, paying them 2 per cent interest.

Now, the daughters are named as unsecured creditors of their parents' company in filings on Monday with Forever 21's bankruptcy.

Details of the family loans provide a glimpse into the workings of a company that, despite its size and profile, has operated in near-total privacy, even as its sales by 2014 topped US$4 billion.

The documents did not specify how large the trust funds were or how big a portion of the funds were drained by the loans.

Los Angeles-based Forever 21's representatives did not immediately respond to a request for comment.

The loans coincided with an ill-fated expansion that featured the launch of more than 200 stores globally between 2005 and 2015.

The project had been championed by Mr Chang Do Won, Forever 21's chief executive officer.

But the new stores were too expensive and too big to stock, with many exceeding 35,000 sq ft, according to court papers. That strained Forever 21's supply chain, and the brand's skimpy Southern California aesthetic failed to resonate abroad, especially in Asia.

By the tail end of the expansion, the new stores were reporting earnings that were down 137 per cent, according to court documents.

They "undermined Forever 21's ability to nimbly bring inventory to market and, by extension, hurt its worldwide profitability while distracting the management team", the company said.

It was under this strain that Forever 21 tapped its founding family for a lifeline.

Mr Chang drew up loan agreements in January 2015 that included US$10 million from his own accounts and US$5 million from each of his daughters, the filings show.

The loans were not the daughters' first foray into the family business. They grew up spending summers and holidays "wielding price-tag guns in warehouses" and both took roles at the company after attending Ivy League universities, according to court documents.

COMPANY JOBS

Ms Esther Chang graduated from Cornell University with a degree in fashion and merchandising and, at age 24 in 2011, was head of the company's visual display team.

Ms Linda Chang got an undergraduate business degree from the University of Pennsylvania and started leading the marketing department at age 27 a decade ago.

Today, she sits on Forever 21's board and is executive vice-president, while Ms Esther Chang is vice-president of merchandising.

Together, the sisters in 2017 launched lifestyle brand Riley Rose to serve as a beauty and wellness complement to Forever 21's fashion offerings.

As part of the bankruptcy, the company will curtail a planned expansion of the brand by seeking to cancel leases on nine unopened Riley Rose shops.

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