In the world of retail, few tales epitomized the American Dream and inspired would-be entrepreneurs quite like that of Forever 21.
In 1981, South Korean immigrants Jin Sook and Do Won Chang (both then just 22 years old) arrived in Los Angeles with little money to their name and no formal secondary education.
A few years later, in 1984, they launched Forever 21—named so because, as its CEO said in a 2012 interview, it targeted “old people [who] wanted to be 21 again, and young people [who] wanted to be 21 forever.”
Catering to youth culture has long been a recipe for success in apparel. But it wouldn’t be until the early 2000s that Forever 21 fully hit its stride as cash-strapped Millennials slowly entered their teens.
As fellow fast-fashion retailers like Zara and H&M grew in popularity across the globe with their essentials and business casual garb, Forever 21 stood out in North America with its rock-bottom prices and pieces that mirrored the designer styles of the day.
With mounds of of-the-moment-merchandise flying out the doors, the company expanded its offerings overseas and beat like-minded competitors who couldn’t keep up with the business’s growing product assortment.
Then, time caught up with them.
On September 29, after months of speculation, Forever 21 officially filed for Chapter 11 bankruptcy protection. It plans to close 178 stores in the U.S. and will cease operations in 40 countries, including Canada, where it’s already begun liquidation.
“What we’re hoping to do with this process is just to simplify things so we can get back to doing what we do best,” Linda Chang, Executive Vice President of Forever 21, told the New York Times, saying that declining foot traffic and changing customer preferences lead to their downfall.
But dig a bit deeper, and you’ll find out that the issues that plagued Forever 21 are the same problems many other retailers continue to encounter. And those who don’t learn from Forever 21’s mistakes may face a similar fate.
Overstored and Overzealous
To say that Forever 21 had more space than they knew what to do with would be an understatement.
As profits grew, so too did the size of their stores. In 2010, they acquired a 90,000 square foot location in Times Square spanning four floors. And, as Amanda Mull recently reported in The Atlantic, Forever 21’s average store is now nearly 40,000 square feet in size—or, to put that number into perspective, 30 percent bigger than the average Best Buy.
Recent court filings state that many of the U.S. stores they expect to close are in underperforming malls, and even their location at the Mall of America is on the list. Forever 21 plans to renegotiate leases in some areas, but, because Forever 21 and other major retailers (many of whom have recently gone bankrupt as well) were once major draws in these malls, acting as a tentpole that supported the rest of the space, their fate will put shopping centers across the U.S. at risk.
Takeaway: Bigger isn’t always better. As department stores continued to shut their doors and other retailers went out of business, Forever 21 moved in. Now, they’re unable to shed leases and excess space in barren shopping locales. As the rise in small format stores proves, concentrating your efforts in more curated locations is often better for customers and leads to more sales than a much bigger space in a less accessible location.
More for Less is Getting Harder to Market
In its heyday, Forever 21 made a name for itself by offering teens and the young at heart an abundance of affordable clothing. It even proved to be recession-proof, continuing to expand its store count after the 2008 financial crisis. Sadly, all that shopping ended up having a negative effect.
According to the U.S. Environmental Protection Agency, the weight of textiles in American landfills increased by 67.7% from 2000 to 2015. And in the U.S., clothing is typically worn for around a quarter of the global average before being thrown out.
That’s a lot of waste. And although Forever 21 isn’t alone when it comes to creating items that are easily discarded into American landfills, with their low-quality goods, they’re certainly perceived as a contributor by the greater public and often come up in conversations about the evils of fast fashion. (Especially by Generation Z, who frequently turn to environmentally-focused labels that help them reduce their carbon footprint and go online for unique, second-hand goods you won’t find at your average apparel retailer.)
Basically, what made Forever 21 a go-to amongst Millennials a decade ago—cheap clothes that mimicked the of-the-moment designs found in classrooms and in the clubs—no longer resonates with today’s youth, who are less loyal to brands and more worried about harming the planet.
In recent years, Forever 21 was forced to expand into new verticals—like home décor, electronics, and cosmetics—and cater to older audiences (customer studies suggest 40 percent of Forever 21 shoppers are now between the ages of 25 and 40) to stay afloat. Meanwhile, competitors like Target and Zara have woken up to their unsustainable ways, and are making a concerted effort to rewrite the wrongs of their past. H&M recently opened a pilot textile recycling plant in Hong Kong that uses advances in technology to turn cotton and polyester blends into yarn. And Zara parent company Inditex is partnering with the Massachusetts Institute of Technology and Austrian plant-based textile producer Lenzing to research new ways to recycle textiles and make new materials from cotton waste, respectively. And both H&M and Zara are rolling out used garment bins in stores to collect unwanted clothes that can be repurposed by the company or sold second-hand at a reduced cost.
If all the attention paid to Greta Thunberg and the activists she’s helped inspire is any indication, today’s teenagers and twenty-somethings are more eco-conscious than ever before, and retailers who don’t follow in the footsteps of brands like Patagonia, REI, and Nike, who are using their brand activism to further global causes and grow their audience, won’t stand out. The practice of greenwashing (i.e., companies who exaggerate their environmentally friendly side for future financial gain) is growing, and consumers are savvy enough to sniff them out.
Takeaway: According to the Boston Consulting Group, global consumption of apparel and footwear is expected to grow by 63% between 2015 and 2030—that’s 102 million tons of clothes and shoes. Suffice to say, our hunger for new clothing isn’t expected to decrease anytime soon. But with Generation Z gaining more buying power in the world’s economy, catering to their tastes is integral to the success of any retailer. Delivering high-quality, curated goods that are made mindfully is no longer a rarity in apparel, but the new norm, and retailers and brands who don’t follow suit risk being left behind.
Looks Matter, Especially In Stores
So, what happens when a retailer has too many products and space than they know what to do with? Often, their stores become a mess.
“It hurts your brain to go in there. It’s like being in someone’s closet,” Gabriella Santaniello, founder of retail consulting firm A Line Partners, recently told Bloomberg.
Back in the day, Forever 21’s greatest strength was undoubtedly its ability to mass-produce on-trend products and fast. Now, with $80 million of inventory tied-up in old stores, it’s become one of their most significant weaknesses, clogging up stores and turning away shoppers who are in the market for more than just steep discounts.
“Store standards have… been sliding and consumer ratings for the quality of displays, merchandise, and the amount of inspiration in shops have dipped considerably over the past year,” Neil Saunders, GlobalData Retail Managing Director, recently told Retail Dive. “In an era when it has become very easy to buy online, Forever 21 has not taken care of its physical assets and the profitability of its estate has suffered.”
Takeaway: The days when offering an endless array of products guaranteed success is over, at least in physical retail. Today, customers want shopping to be an experience, and stores that don’t put a premium on striking the right tone and finding differentiators that make them stand out from the competition won’t survive.
With a third of Forever 21’s stores slated to close, analysts suggest there’s roughly $690 million in possible apparel sales coming available in the teen and young adult market. And stores like American Eagle Outfitters, Express, Abercrombie & Fitch, Gap, and Forever 21’s formal rivals, H&M and (to a lesser extent) Zara, are already closing in on it.
Still, Forever 21 isn’t going down without a fight.
“In an ever-shifting retail landscape that has seen dozens of casualties over the last several years, the traits that initially led to the success of Forever 21—collaboration, grit, and creativity—are the same traits that will propel Forever 21 through these chapter 11 cases successfully, but only so long as all parties in interest work collaboratively to ensure that these cases stay on track,” the company’s chief restructuring officer, Jonathan Goulding, stated in court filings.
Their plans involve spending $172,000 to promote its liquidation sale (including $52,000 for people holding up signs near stores) and resurfacing as a smaller, agile, and more focused retailer, as well as attract customers who are willing to spend a bit more.
But better clothes at a higher price simply isn’t enough when customers want fewer goods, better in-store experiences, and brands that stand for something.
Forever 21’s future doesn’t look pretty. But retailers who are mindful of their customers’ cares and concerns, put an emphasis on the in-store experience and better merchandising, and realize size isn’t everything (and more stores don’t always equal more market share) won’t face as much uncertainty.