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ABG Lawsuit: Tech ‘Failure’ Cost Forever 21 $150 Million

The owner of Reebok and Brooks Brothers is suing a rising tech innovator for allegedly failing to live up to its promises and costing Forever 21 as much as $150 million in sales.

Authentic Brands Group (ABG), which also counts Barneys New York, Eddie Bauer and Lucky Brand in its portfolio, claims Bolt Financial, Inc. “has utterly failed to deliver on the technological capabilities that it held itself out as possessing, including the ability to seamlessly integrate Bolt’s products into brand partners’ websites.”

Bolt, $11 billion fintech provider making headlines for instituting a four-day workweek, is an e-commerce checkout provider that says its operating system and “single sign-on” technology allow consumers to shop at different websites with a universal login account.

ABG’s complaint said its attempts to deploy Bolt’s products on three of the brand manager’s labels have been plagued by “repeated failures” that mean the tech is live with just two brands—Forever 21 and Lucky Brand.

Forever 21, which ABG acquired under its SPARC Group joint venture with Simon Property Group after the teen retailer’s bout with bankruptcy, was allegedly hit hard by “significant and recurring technical problems caused by Bolt.” ABG said Forever 21’s online business experienced a material reduction of more than $150 million in gross sales during the Bolt integration and immediately after.

Additionally, the plaintiff said Bolt led a “disastrous” integration of its checkout onto the Forever 21 mobile app, which drives approximately 23 percent of the Gen Z retailer’s sales. The app saw a significant drop in conversion, resulting in millions of dollars in losses.

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The third ABG brand partner involved—Brooks Brothers—was forced to abandon its integration with Bolt in June last year due to persistent technical product defects related to company’s checkout feature. Issues encountered with the Brooks Brothers website included user authentication, single sign-on, and buy now, pay later integrations with Klarna.

Ahead of the 2021 holiday season, SPARC spent “at minimum, hundreds of thousands of dollars” to pay its third-party system integrations partner to find a new checkout solution that possessed some of the functionality of Bolt’s products.

ABG also accused Bolt of failing to deliver a viable version of its anticipated “AllPass” customer loyalty product by the Jan. 15, 2021 deadline they agreed to.

Bolt allegedly told ABG that it was ready to launch AllPass in February 2021, but ABG countered by saying that the tech provider’s own documents indicated that it didn’t even have a viable product until mid-July. From there, testing of the membership program was extended through September, with the launch first planned in October and November 2021.

“In reality, Bolt did not deliver even a minimum viable product of AllPass until November 2021,” the suit said. “Thus, Bolt failed to meet even the substantially delayed and contractually non-compliant mark that Bolt itself had projected (and later tried to deny).”

ABG’s SPARC Group, including Simon Property Group, is also a plaintiff in the lawsuit, which was initially filed on Feb. 7.

Authentic Brands Group declined to comment. Simon Property Group didn’t immediately respond to a request for comment.

Despite the suit, Bolt CEO Maju Kuruvilla appears to remain bullish on the partnership’s trajectory. The company has requested to have the complaint dismissed, claiming that ABG’s suit was a transparent attempt to have the court rewrite the deals between the two parties.

“We are committed to providing all of our customers with a great product and we are thankful for our wonderful partnership with Forever 21 and Lucky Brand which continues to be strong,” Kuruvilla said. “Although we deny all of Authentic Brands Group’s allegations, it’s clear that ABG has confidence in Bolt as they are fighting to own significant equity in our business. We look forward to continuing to work closely with Forever 21 and Lucky Brand on delivering the best checkout experience for their shoppers.”

Kuruvilla is referring to the companies’ October 2020 agreement that ABG may gain the option to exercise a warrant to purchase up to a 5 percent stake in Bolt. This deal was initially contingent on the brand management firm’s ability to contribute $750 million in gross merchandise value via Bolt’s technologies by October 2022

ABG claims that Bolt told it in writing as recently as Sept. 3, 2021 that it was “making substantial progress” toward the $750 million goal via Forever 21 and Lucky Brand. But the checkout provider pulled an about-face one month later, according to ABG, which said that Bolt “inexplicably and abruptly” changed its position to claim instead that ABG’s GMV contribution was zero.

In the suit, Authentic Brands also levied charges including unjust enrichment, trademark infringement and false advertising. In the unjust enrichment charge, ABG accused Bolt of leveraging its partnership to gain additional business with companies such as Casper and Shopify despite its failure to deliver the AllPass product and denying ABG the right to exercise its 5 percent purchase warrant.

ABG said in its trademark infringement claim that Bolt’s use of its intellectual property and logos could likely cause confusion regarding the relationship between the two companies. The false advertisement claim is geared toward Bolt’s representation of the partnership to investors, claiming that “GMV was ‘booked and coming live’” for brands such as Aeropostale, Barneys New York, Eddie Bauer, Herve Leger, Jones New York, Nine West and Volcom among others.

“Many of these brands do not even use e-commerce or are on platforms that are not compatible with Bolt,” the suit said.

Despite the current lawsuit, Bolt has seen significant growth over the past year, with the company raising $748 million in October 2021 and January 2022.

In 2021, the fintech firm saw gross merchandise value (GMV) per merchant grow by 80 percent, while its total number of accounts and transactions grew by 180 percent and 200 percent, respectively.

Bolt made its biggest acquisition yet earlier this month, scooping up cryptocurrency infrastructure provider Wyre for an estimated $1.5 billion to bring the digital currency into its checkout and payments ecosystem.

The company claims to command a sizable shopper network of consumers who have engaged through its checkout and payments solutions. This feature remains enticing for a company like Authentic Brands Group, which likely envisioned significant crossover potential among its consumers. The firm owns and operates more than 30 total brands that generate more than $14 billion in annual retail sales and operates more than 6,000 freestanding stores and shop-in-shops worldwide.

By the end of 2022, Bolt is shooting for its shopper network to reach one-third of all U.S. consumers, with ambitions to scale to two-thirds by end of 2024.

Among the plaintiffs’ list of relief demands in the case include damages in amounts to be determined at trial; pre-judgment and post-judgment financial interest; as well as a declaration that GMV contribution will be calculated based on the use of all Bolt products instead of AllPass. The ABG team is also asking for injunctive relief that would prevent Bolt from further breaching the companies’ agreements and exploiting intellectual property.

In a memo sent from Bolt’s general counsel to company employees, the letter said, “We disagree with ABG’s assertions, and stand behind the incredible work our teams have put into this relationship. Furthermore, we believe our position is strong, and look forward to prevailing in court as the legal process plays out.

The San Francisco-based tech firm hasn’t shied away from controversy in the lead-up to the suit. In January, executive chairman and company founder Ryan Breslow penned a Twitter diatribe accusing venture capital giants Sequoia and Y Combinator and payments company Stripe of operating as “mob bosses” for allegedly conspiring to sink his company.

A New York Post article earlier this month also reported that the company’s initially reported $11 billion valuation has since fallen nearly 50 percent in the months since Breslow’s comments. Sources said concerns about Bolt’s leadership have eroded potential investors’ confidence in the company.