Struggling fast fashion retailer Forever 21 is currently in discussions with liquidators regarding potential future actions, as reported by insiders. This development indicates the company’s challenges in securing a buyer, leading them to consider a second bankruptcy filing.

Insiders reveal that Forever 21 has been actively seeking a buyer to prevent its closure, and in early January, the brand began evaluating various strategic alternatives. By including liquidators in these talks, Forever 21 is positioning itself to leverage any proceeds for creditor repayments if a buyer cannot be found.

Finding a suitable buyer to rejuvenate the Forever 21 brand could be a daunting task due to fierce competition from online platforms like Shein and Temu, increased tariffs, and a diminishing brand appeal. Some sources, who have reviewed the company’s financial records, expressed concerns over these obstacles. They spoke with CNBC on the condition of anonymity due to the sensitive nature of the negotiations.

Forever 21 has long grappled with profitability and faced challenges in controlling inventory and managing costs, according to several sources.

It remains uncertain whether Forever 21 has engaged a liquidator yet, and if so, whether it will proceed down that path. The retailer might still uncover a purchaser for some or all of its assets or negotiate with creditors to avert liquidation.

The company declined to provide comments on this issue, and BRG, the advisory firm it is reportedly working with for restructuring guidance, did not respond to requests for information.

These discussions follow reports from months ago indicating that Forever 21 was struggling financially and asking landlords for significant rent reductions, sometimes as much as 50%, in a bid to manage costs more effectively. At that time, the company wasn’t contemplating another bankruptcy, but the situation has since declined. Its partnership with Shein, which transitioned from competitor to ally, has also yielded mixed results, with the CEO of Authentic Brands Group acknowledging it as a work in progress.

As Forever 21’s attempts to reduce expenses and increase revenue have faltered, the brand is now weighing the possibility of a second bankruptcy filing, as confirmed by sources and previously reported by The Wall Street Journal.

Forever 21 first sought bankruptcy protection in 2019 and was subsequently acquired by a consortium including Authentic Brands Group, along with Simon Property Group and Brookfield Property Partners. This initial Chapter 11 process allowed the company to restructure its finances and terminate several costly leases. However, in the time since, Forever 21 has struggled to adapt its business model and face new competitive challenges.

Once a major player in fast fashion, Forever 21 is now overshadowed by newer industry titans such as Shein and Temu, which utilize advanced technology and artificial intelligence to optimize their operations and quickly respond to consumer demands. This agility has put traditional retailers, especially those tied to extensive physical store networks, at a disadvantage.

Since Shein operates under Sparc Group, which manages Forever 21’s functions, industry analysts have speculated whether Shein might take over Forever 21’s physical locations. Acquiring assets from Forever 21 could help solidify Shein’s status in both the U.S. and global markets as it seeks to go public in London; however, some have noted that this is unlikely due to Shein’s limited experience in brick-and-mortar retail.

The challenges faced by Forever 21 illustrate the rapid evolution of the fashion retail landscape and the increasing difficulty for larger retailers to thrive. The growing competition from Shein and Temu mirrors the disruptions caused by Amazon in the past, which led to a wave of bankruptcies and liquidations among traditional retailers.

This scenario also gave rise to brand management firms like Authentic Brands, which acquire the rights to brands and revive them later on. However, with Authentic Brands already owning Forever 21’s intellectual property, it is unclear who may be interested in acquiring the struggling retailer, as noted by restructuring attorney Sarah Foss, who leads Debtwire’s legal division. Firms like Authentic Brands often have first dibs on the intellectual property of companies approaching bankruptcy.

“Those are typically the frontrunners we observe in retail bankruptcy cases,” Foss stated. “It will be interesting to see who might step up to acquire Forever 21, or parts of it.”

— Additional reporting by CNBC’s Lillian Rizzo