(Reuters) -Forever 21's U.S. operating company on Sunday filed for bankruptcy for the second time in six years and said it would wind down its domestic operations, hurt by mounting online competition in the fast-fashion sector and weak mall traffic.

It blamed the situation on higher costs and companies taking advantage of duty-free treatment of low-cost packages from China to undermine its pricing power.

"We've been unable to find a sustainable path forward, given competition from foreign fast-fashion companies, which have been able to take advantage of the de minimis exemption to undercut our brand on pricing and margin," said Brad Sell, finance chief at the company that operates Forever 21's 354 U.S. stores.

De minimis refers to the U.S. waiver of tariffs and customs procedures on imported items shipped to invidiuals that are worth less than $800. It helps Chinese online retailers like Shein and Temu to keep prices ultra-low.

U.S. President Donald Trump paused his administration's repeal of the clause in February after the rapid change created disruptions for customs inspectors, postal and delivery services and online retailers.

Forever 21 entered bankruptcy with $1.58 billion in debt, after losing more than $400 million over the last three years.

It lost $150 million in 2024 alone, and was projected to lose approximately $180 million in 2025, according to documents filed in a Wilmington, Delaware bankruptcy court.

Founded in Los Angeles in 1984 by South Korean immigrants, Forever 21 was popular among young shoppers on the prowl for stylish but affordable clothing.

At its peak, it employed 43,000 people, operated 800 stores globally, and recorded over $4 billion in annual sales, according to court documents.

'HIGHLY COMPETITIVE ENVIRONMENT'

The rise of e-commerce retailers and the slow death of the American mall hurt apparel companies such as Forever 21 and Bonobos-parent Express, which filed for bankruptcy last year.

"Brick-and-mortar retailers like Forever 21 operate in a highly competitive environment where the cost of doing business is expensive and rising with inflation rates," said Sarah Foss, head of legal and restructuring at Debtwire, which provides data and analytics on leveraged loans.

The retail sector saw 20 bankruptcy filings since the start of 2024, while 25 retail chains have had at least two bankruptcy filings since 2016, according to Debtwire data.

Forever 21 is conducting store closing sales at all of its U.S. locations, and it will honor customer gift cards during the first 30 days of its bankruptcy.

The company will continue to engage with potential buyers who wish to purchase some or all of its U.S. business. Its international stores remain unaffected by the bankruptcy.

Forever 21 previously filed for bankruptcy protection in 2019 and was brought out of it by Sparc Group, a joint venture between label owner Authentic Brands Group and mall operators Simon Property and Brookfield Asset Management.

It experienced a brief post-bankruptcy rebound, recording revenue of $2 billion in 2021, before losses started to pile up again the following year.

In 2023, Shein acquired a stake in Sparc group, in a deal framed as a partnership that would allow Forever 21 to sell certain items on Shein's website. But it failed to stem the company's losses, Forever 21 said in court filings.

Forever 21 is now owned by Catalyst Brands, an entity formed on January 8 through the merger of Sparc and JC Penney, a department store chain owned since 2020 by mall operators and Simon Property Group.

When Catalyst Brands was formed, it said it was "exploring strategic options" for Forever 21.

Authentic Brands will continue to own Forever 21's trademark and intellectual property, which could live on in some form. Its CEO Jamie Salter last year called acquiring Forever 21 "the biggest mistake I made".

(Reporting by Nicholas P. Brown and Dietrich Knauth in New York, Juveria Tabassum and Rishabh Jaiswal in Bengaluru; Editing by Mrigank Dhaniwala, Arun Koyyur and Joe Bavier)