Where did Forever 21 go wrong?
Updated: Jul 19, 2020
Note: This article was originally published on September 30, 2019
Forever 21 was once America’s most loved brand and possibly the fastest growing fast fashion retailer back in the 90s. At its peak, it had a revenue of over $ 4.4 Billion. In 1981, Jin Sook and Do Won Chang moved from South Korea to Los Angeles. Chang noticed that the people who drove the nicest cars were all in the garments business. In 1984, he and his wife with $ 11,000 of savings opened the first 900 square foot store called Fashion 21 in Los Angeles. They took advantage of wholesale closeout to buy merchandise from manufacturers at a discounted price. The store had Sales of $ 700,000 during the first year. Target market was initially LA’s Korean American community but eventually with the expansion, the target market was widened to young girls and women with a mix of inexpensive basics. They opened a store nearly every 6 months from there on across USA. This not only brought in more Sales but also broadened the customer base. Eventually, the name changes from Fashion 21 to Forever 21, particularly to emphasis on the idea that the brand is for anyone who wants to be trendy, fresh and young in spirit. The formula was working; Forever 21 had a huge following by selling trendy clothes at a low price and generating large profits. The brand was one of the first to do so and brought a change in the retail industry. It perfected the fast fashion model.
In 2015, the Sales were doing great with $ 4.4 Billion in revenue at its peak. The couple become one of the wealthiest couples in USA. Their net worth was around $ 5.9 Billion in March 2015. The goal of the brand was to become an $ 8 Billion company by 2017. Now the story has changed though. Sales have plunged and so have the net worths of Jin Soon and Do Won. The Changs have lost more than $ 4 Billion and now have a combined net worth of $ 1.6 Billion. The brand filed for Chapter 11 bankruptcy on September 29th, 2019 after failing to secure additional financing or restructuring their debt. Here is my analysis of what possibly went wrong with brand and where they could improve:
· Limited Stores Expansion Planning: Millennials today make majority of their purchases on online shopping stores and not in physical stores. Ideally Forever 21 should have worked on their online presence and reduced the size of their stores to generate better returns but they didn’t. New stores were opened even in 2016 and expansion of the existing stores continued. They went from 7 countries to 47 countries in a less than six year time frame. They have more than 800 stores in 57 countries today. With that came a lot complexities which the brand was not entirely ready for. The key differentiation factor between brands which survived and the brands which didn’t is that the brands which survived over the last few years did not hold too much debt and did not expand too quickly. For Forever 21, the Sales dropped by over 20% in 2018. They have started downsizing their stores lately though but is it too late?
· Poor In store Experience & Limited Technology Focus: Competitors like Zara invested massively on improving the in store experience. by increased focus on technology. The goal for Zara was to offer customer a slicker, more streamlined and ultimately an enjoyable experience. This includes self-service checkouts for customers and click and collect store, which was launched in London, where customers have an option to order and pay via their mobile phones. A lot of brands like Nike are launching augment reality based apps, which help measured accurately up to 2 millimeters of the foot size to order the perfect shoe size and help reduce returns and decrease a major customer pain point and company pain point. An increased focus on technology is essential to enhance the customer experience in store. This not only helps boost success but also cements the loyalty of long term customers. Forever 21 has not entirely focused on this aspect and if done, can lead to a substantial difference.
· Crowded Market Space: Fast Fashion Industry was growing faster. The supply chain speed was increasing with fierce competition. A brand might read the trend wrong and miss the season collection entirely. The retail landscape was to be evolving faster than Forever 21 could handle it.
· Outdated Designs and Limited focus on Eco-friendly designs: Customers recently prefer simpler clothing over clothing with designs and symbols. Forever 21 did not move in that direction and that did not work well with the millennials. The average customer today looks for eco-friendly product which Forever 21 did not focus on either. Brands like Adidas are making sneakers entirely out of plastic ocean waste. They aim to make 11 million pair of sneakers from recycled ocean plastic. I am sure you know how well adidas is doing with the latest collection.
· Quality Compromise: What made the brand famous was its fast fashion. The stores did great, even though nearly all of the products were mass produced and sold only for a limited time. Eventually, the style focus should have been shifted to Millennials and Gen Z who prefer quality. Most of the styles were even compared to a cookie cutter. As a result, the brand started to lose touch with its core customers to competitors in the industry. It was no longer the fastest in the game and the quality eventually fell which repelled even more customers.
· Minimal Online Presence: Traditional brick-and-mortar retailers that specialize in selling clothes to the target market of Forever 21 have struggled in recent years, as fashion cycles shorten and younger buyers shift from the mall to online purchases. Traditional brands do struggle a lot to get online but the transition is necessary in today time. Forever 21 failed to embrace this which would help them understanding consumer behavior better and have styles which the average customer is looking for today. Brands like Fashion Nova release styles inspired by celebrities and influencers on a regular basis.
· Limited Sizes: Brands like Nike and Puma recently really revamped their plus-size offerings, and they’re actually putting plus-size bodies in campaigns. This is a strong and positive change against the micro-aggression towards plus-size women. Forever 21 never catered to this market which could have made a substantial difference.
· Lawsuits: Forever 21 and its founders have faced near constant lawsuits for everything from labor department violations to copyright infringement. Anthropologie on September 21, 2007, H&M on September 29, 2015, adidas in July 2017, Gucci on August 10, 2017, Ariana Grande on 3 September, 2019 are just to name a few. Forever 21 has been particularly dismissive of the many claims waged against them. To their business model, this is simply a cost of doing business in the fast fashion space. To thrive, illegal copying has to be a part of their business model. Only last week, nearly 2 years after Adidas sued Forever 21 for selling garments and accessories bearing allegedly infringing striped designs in violation of two of the parties’ prior settlement agreements, and for offering up “repurposed adidas” products on its website, which adidas alleged are counterfeits, the German sportswear giant wants the court to dismiss a handful of Forever 21’s response claims, including the fast fashion retailer’s attempt to invalidate one of adidas’s trademark registrations.
· Customer Data Leak: Back in November 2017, Forever 21 announced that some of its customers may have been affected by a data breach. After launching an investigation, it found certain point-of-sale devices were compromised — likely between March and October of 2017. This is not a major point which lead to downfall but it does affect the customer trust on the brand having a negative effect.
Forever 21 is an iconic brand. It is a large tenant of shopping malls across USA. A wide spread shutdown could help expedite “The Retail Apocalypse” which has closed more than 15,000 stores across the USA and could shut down another 75,000 retail stores by 2026 according to UBS. So far in 2019, retailers in the United States have announced more than 8,200 store closings, already exceeding last year’s total of 5,589, according to Coresight Research. Payless and Gymboree both filed for bankruptcy for a second time, closing nearly 3,000 stores between them. Further retail shutdowns are expected to pile up and may reach 12,000 by the end of 2019, Coresight predicts. Bankruptcy does not mean it’s the end of Forever 21 thought. It could give it the opportunity to restructure and bounce back stronger. Forever 21 already intends to close up to 178 stores and up to 350 stores globally, citing Forever 21′s chief restructuring advisor Jon Goulding. Most of the stores closing will probably be in Asia and Europe. The brand recently announced that all the stores in Japan will close by October end.
It’s a tough time, the online stores are doing exceptionally well and the leaders in the fast fashion category are already leaps ahead in the game. An established brand is always easier to connect to, instead of starting a brand from scratch and trying to connect with audience. Forever 21 should capitalize on that and build back the brand which made it America’s favorite in the first place. At the end of the day, Forever 21 needs to evolve and come down to how quickly it can match shifting consumer trends. Only time will tell how Forever 21 does it.