- Forever 21 just filed for its second bankruptcy in five years.
- The former icon of American fast fashion partly blamed its troubles on Shein and Temu.
- In particular, the company said the "de minimis" exemption gives it a disadvantage with tariffs.
Forever 21 is navigating its second bankruptcy in five years, but this time around it has a new problem.
For decades, the mainstay of American shopping centers was a fast fashion icon, featuring branded collaborations with everyone from Cheetos to the United States Postal Service.
But now the company faces fresh challenges, beyond the decline of shopping malls and rising costs. Specifically, it's partly blaming Chinese e-commerce and a foreign trade rule regarding small shipments that has gotten a lot of attention this year.
"The Debtors' business has been materially and negatively impacted by the ability for online retailers to take advantage of the 'de minimis exemption' which exempts goods valued under $800 from import duties and tariffs," F21's co-chief restructuring officer Stephen Coulombe wrote in a court filing Sunday.
The "de minimis" rule to which Coulombe is referring allows smaller parcels to enter the country without a tariff — for example, a low-cost phone case or a $20 dress.
By sending a lot of small packages directly to US shoppers, some foreign e-commerce retailers are able to avoid paying tariffs that would otherwise apply if that same merchandise arrived via a larger, more expensive shipment to be later packed and delivered (or sold in stores).
An estimated 1.4 billion shipments arrived in the US under the exemption last year, according to US Customs and Border Protection.
"Certain non-U.S. online retailers that compete with the Debtors, such as Temu and Shein, have taken advantage of this exemption and, therefore, have been able to pass significant savings onto consumers," Coulombe added.
The world got a vivid picture of how this "de minimis" rule works back in February when President Donald Trump ended the exemption, quickly causing a backlog of packages that needed US recipients to pay a tariff on. Trump soon reversed course.
Forever 21's bankruptcy statement is a remarkable one for a US retailer to make, as Business Insider Emily Stewart noted last month.
"Most retailers don't outright say that Shein and Temu are a problem for them," she wrote. "It's not a great look to admit that you're hemorrhaging customers because you can't compete with e-commerce companies selling the lowest-quality, lowest-priced versions of everything you make."
