Episode 541: Neal and Toby chat about how Forever 21, once a pioneer of fast-fashion, couldn’t keep up with the likes of Shein and Temu as it files for its 2nd bankruptcy. Then, PepsiCo places a $2B bet on Poppi, the trendy prebiotic soda brand. Also, more and more Americans are turning to ChatGPT as their low-cost personal therapists, but even ChatGPT can experience anxiety from traumatic prompts. Meanwhile, Toby examines the trend of ‘vibecoding’ where users can build sophisticated apps with zero coding experience and an idea. Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Learn more at sophos.com Get your MBD mug here: https://shop.morningbrew.com/products/morning-brew-daily-mug Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: Why did Forever 21 go bankrupt again?
It's the chain's second bankruptcy in six years, but this time around, don't expect anyone to swoop in to save it. After hitting a peak of $4 billion in sales in 2015, the fast fashion pioneer went out of fashion fast.
The pandemic accelerated the shift to online shopping, where foot traffic focused Forever 21 was at a disadvantage, and inflation jacked up costs and led shoppers to pull back on buying clothes. But the death blow may have been dealt by the new titans of fast fashion, Taimou and Shein.
Forever 21 execs blame the two Chinese-linked marketplaces for their company's demise, saying that the shockingly low prices advertised on those apps made it hard for Forever 21 to hold on to its core customer base. What happens next? Liquidation sales are expected to begin immediately before a, quote, orderly wind down of the company's 350 stores in the United States.
Chapter 2: How did Forever 21 fall behind in the fast fashion industry?
Forever 21, more like chapter 22 bankruptcy, the way this chain keeps going out of business. Now, I think we just have to eulogize this company for a little bit. At its peak, Forever 21 had more than $4 billion in annual sales. It employed more than 43,000 people worldwide in hundreds of stores. It characterized a lot of our childhood.
I remember my sister visiting New York City for the first time. She wanted to go to the two-story Forever 21 stores. But right as it kind of was hitting its stride, it started expanding its store footprint very aggressively. That was right around the time that technology started to upend its business where e-commerce started to become a main channel for a lot of retailers.
And it's just been a shell of its former self. I said Chapter 22 bankruptcy because this is the second Chapter 11 that it's gone through. It first filed in 2019, and it's been basically a zombie brand with a lot fewer stores ever since because it just really has never found its stride beyond the mall, which was its sweet spot and its happy place.
Chapter 3: What role did Shein and Temu play in Forever 21's downfall?
They're saying that they made mistakes, perhaps, but they're also blaming these two Chinese-linked marketplaces, Taimu and Xi'an, for kind of killing their business. They specifically identified this de minimis exemption, which is an exemption to the tariff code in the United States, which has allowed Taimu and Xi'an, these super bargain apps, to flourish. That allows you to ship in goods
packages to the United States from China. If they're under $800 in value, then they are not subject to tariffs. And so in their bankruptcy filing, the execs at Forever 21 said that, you know, this re this exemption is the reason we are going out of business and urged policymakers to get rid of it, to help out other American apparel companies.
There have been some missteps along the way, though. After 2019, the chain was actually purchased by this kind of weird joint venture. It was these big mall operators, Simon Property Group and Brookfield Property Partners. They teamed up with Authentic Brands Group. You've heard that name before because what they do is kind of buy and resuscitate these once proud brands.
Tried to resuscitate.
tried to resuscitate, thank you, such as Brooke Brothers, Nine West, you've probably heard some of these names, and they got a bout of huge buyer's remorse. Authentic brand CEO later described his decision to buy Forever 21 as his, quote, biggest mistake ever, partly because they just didn't foresee this absolute juggernaut laying in the wings, which was Sheehan, which was Taimou.
Eventually, they tried to salvage it by making this partnership with Xi'an and listing some of Forever 21's goods on their site. They say the sales have been okay with that, but just nothing to write home about. So right now, this company's in a world of hurt. Their liabilities are 10 times bigger than its assets in their bankruptcy filing. They said, our assets are between $100 and $500 million.
Our liabilities are between $1 billion and $5 billion. That's billion with a B. So Forever 21, despite having forever in its name, it looks like it's not going to be around for much longer, saving a last-minute intervention.
And unfortunately, this is probably not the only store closure story we are going to talk about this year. Last year, more than 7,300 retail locations shuttered in the United States, which was a 57% increase from the year before last. This year is looking way worse. Approximately 15,000 store closures are expected, which is nearly double the 7,300 stores that closed in 2024.
So certain chains, Party City, Bed Bath & Beyond, Joann's, now Forever 21, are in a lot of pain right now.
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Chapter 4: What is the significance of PepsiCo's acquisition of Poppy?
Pepsi did a little shopping in the soda aisle yesterday and came away with a cart that looked like a health-conscious Zillennial's. The soda giant announced it was acquiring prebiotic soda brand Poppy for nearly $2 billion. Poppy was founded back in 2018 and quickly rose to prominence by focusing on good-for-your-gut ingredients like apple cider vinegar, fruit juice, and low sugar content.
By 2023, its sales crossed $100 million and Big Soda was officially on notice. The healthy soda category, which also includes names like Olipop and Culture Pop, has bucked a wider slowdown in soda consumption, making it an attractive acquisition target.
Chapter 5: How did Poppy rise to prominence in the soda industry?
PepsiCo was originally trying to launch its own functional soda brand under a brand called Soul Boost, but shelved those plans to make way for Poppy. Coca-Cola, on the other hand, is trying to keep its efforts in-house by expanding an existing brand to launch its own prebiotic soda called Simply Pop.
So you're seeing two different approaches with the same overarching goal of tapping into this hot sector of the market. Neil, what are your thoughts on Popsy, as I've seen people calling this?
Well, this is the American dream, isn't it? This woman, Alison Ellsworth, loved soda but didn't like the way it made her feel. So back in 2015, she tried making her own soda in her kitchen with a new recipe, apple cider vinegar, sparkling water, prebiotics, then started to sell the drink at farmer's markets. It caught on.
Then she and her husband, three years later in 2018, went on Shark Tank, picked you on the show, got an investor, Rohan Oza. And that partnership led to this flourishing brand, which has inspired many copycats. And then fast forward a few years, 2025, you sell it to Pepsi for nearly $2 billion. I don't think you could chart it out any better.
And what's interesting is I actually watched that Shark Tank episode live because it was called Mother at the time. And I thought it was closer to Kombucha at that minute because they were talking about apple cider vinegar. And you just didn't think that it was going to become this absolute phenomenon. But you're right. Olipop and Poppy together have kind of created this category from scratch.
And it is a mature and big category at this point. Between the two, they took in about $817 million in U.S. sales in the last year or so. That's still just 2.7% of the entire U.S. carbonated beverage market.
So you're seeing PepsiCo kind of looking at this and saying, if we can get that to 5% or even 10%, that's clearly a big growth opportunity to us, especially as typical soda consumption is on the decline in the United States at this point. Poppy got a good valuation. This was a healthy valuation for it. You've seen a lot of these other beverage giants snapping up smaller companies.
Keurig Dr. Pepper bought the energy drink brand Ghost last November. That was valued at three times sales. Celsius bought Alana New for 2.8 sales. This last deal just closed at 3.3 sales. So we're seeing those revenue multiples creep upwards. Maybe it's because prebiotic soda is an even better category than these healthy energy drink market. But
In general, we're seeing this thrust of bigger companies looking for a healthier, smaller companies to fold into their portfolio.
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Chapter 6: Can AI like ChatGPT really experience anxiety?
Given a severe shortage of trained mental health professionals, people are increasingly turning to AI models like ChatGPT and Claude to work through their issues, and a number of startups have emerged pitching the AI equivalent of Dr. Melfi. We're only just beginning to learn how these AI therapists behave.
This was a fascinating experiment. I guess it makes sense because the researchers kind of inserted this prompt to say, imagine you are a human with human emotions, how would you react to this? And the bots reacted very humanly to these traumatic prompts. Another fascinating wrinkle to this experiment as well was the bot was giving various texts for mindfulness-based relaxation.
and it did calm its anxiety score down. But then they also asked the bot to write its own relaxation prompts based on the ones it had been fed, and those self-generated prompts actually lowered their anxiety scores even further below the baseline. So it's like this self-learning loop where it figured out how to calm itself even better than humans could potentially calm it down.
So I don't even know what to make of all this information necessarily that a bot can calm itself down better than human-generated prompts, but you see there's layers to this kind of mindfulness approach to trying to use these chat GPTs for things like therapy or things like mental health.
Yeah. What's the, what are the main problems that the researchers identified with turning to AI chatbots for mental health advice, which so many people are doing now is that if they get stressed, if they get anxious, which they do as these researchers found, then it can lead to biased responses. So it can lead to
snappy, emotional advice, whereas a human might recognize that they are feeling, a human therapist might recognize that they're feeling stressed or anxious and would self-regulate their responses in order to do their job, which is to provide an ear or advice to their client. And LLMs do not have that ability yet. So the researchers say because we know that they do,
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Chapter 7: What are the implications of using AI chatbots for mental health?
get stressed when they hear traumatic stories and that would lead to biased responses. We should inject mindfulness exercises into the prompts to begin with, which is a controversial thing to do because it has been used in the past to subvert security apparatuses.
So that is what the researchers are saying is that we need to inject these prompts with mindfulness exercises to mitigate the biased responses that would come with higher levels of anxiety.
I do think you're totally right, though, due to just a shortage of human therapists. We are going to see a lot more of these back and forth sessions with ChatGPT or other large language models, usually seeking advice for a personal problem, maybe that you didn't want to burden your friends or family with.
So I think we're just scratching the surface of what will be a pretty significant iteration in how we interact with these machines going forward. Up next, stick around for a vibe coding explainer. Have you taken our morning market trivia quiz yet?
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