Forever 21, once the undisputed king of America’s fast fashion and the hottest place for teens to get their on-trend clothing, filed for bankruptcy in October 2019.
What was the reason behind the downfall of America’s fastest-growing fast-fashion retailer? Well, let’s take it from the top.
Back in the day, Forever 21 embodied the American dream: In 1981, husband-and-wife Jin Sook and Do Won “Don” Chang moved to Los Angeles from South Korea with no money, no college degrees, and little speaking English. To make ends meet, Jin Sook worked as a hairdresser while Don worked as a janitor, pumped gas, and served coffee. Don soon noticed that the people who drove the nicest cars were all in the apparel industry. So, 3 years later, with $11000 in savings, they opened their first store, a 900-square-foot space called Fashion 21 in Los Angeles. The couple took advantage of wholesale closeouts to buy merchandise at a discount and brought in $700,000 in sales during the first year of business.
After the success of their first store, the Changs changed the brand name to Forever 21 to emphasize the idea that this brand was for anyone who wanted to be trendy, fresh, and young in spirit. The company rose to popularity by selling trendy clothes for low prices, a strategy which proved effective amongst millions of youngsters who didn’t have much money to spend but wanted the latest looks. While this is something that is expected out of brands today, Forever 21 was the first to do it.
Eventually, Jin Sook was approving 400 designs a day and new stores were opened every six months. By 2010, Forever 21 was dominant in the fashion industry with 500 stores across the U.S. The company peaked in 2015 with $4.4 billion in sales from more than 600 stores. The Changs had a combined net worth of $5.9 billion. They had risen to success by turning over their inventory quickly and creating the most affordable styles.
However, Forever 21 expanded “too fast, too soon”. They expanded rapidly in a short period of time, going from outlets in seven countries to 47 in just six years. It wasn’t late before the problems of rapid expansion caught up with the Changs. Inadequate research about consumer tastes and preferences and failure to tailor their designs as per local needs proved to be one of their biggest mistakes.
Then hit the retail apocalypse. Consumer behavior changed rapidly and in March 2019, a survey revealed that approximately 60% of the millennials made their purchases online.
Up until 2016, Forever 21 continued opening new stores and even expanding the existing stores with men’s, children’s, and home-goods’ sections. Instead of slowing down on physical space, they kept building it up. As Internet brands such as ASOS and Fashion Nova emerged (whose entire business model is online), traditional retailers such as Forever 21 struggled to adapt.
16% of their sales came from the online platform but they failed to realize that for brands that target young consumers, digital was the driving force. They soon lost their core demographic to competitors such as H&M and Zara. Forever 21’s sales are estimated to have dropped by 20-25% in 2018. They were no longer the fastest in the game and their large number of stores with huge space occupancy proved to be an additional burden in the form of higher rents.
Hence, it came as no surprise when Forever 21 announced that it had filed for bankruptcy protection and was going to close all of its stores in Canada and Japan, most of its stores in Europe and Asia, up to 178 stores in the US and as many as 350 globally.
Forever 21’s bankruptcy was a result of both declining mall traffic and a waning interest in fast fashion. They are now forced to restructure the entire company and bolster their e-commerce platform to make up for the lost sales.
It seems that Forever 21 may not stay forever after all.