The ups and downs of Forever 21

Once the retail giant, the hottest place for the Gen Z has filed for bankruptcy. There sales peaked in 2015, with $4.4 billion in global sales that year, and in 2017, generated a revenue of $3.4 billion.

Forever 21 Outlet

Forever 21 has filed for bankruptcy and will soon cease operations in 40 countries and close up to 350 stores globally by 2020. That is what is happening with them. What led to this? What led to the downfall of once the juggernaut?

"The biggest lesson that I’ve learned is that fashion is this tightrope where you have to be consistent but inconsistent. You need the connective thread but at the same time you need a sense of surprise" – Michael Kors, Chairman, Michael Kors Holdings

Some forever’s are not meant to forever. Yes, Forever 21 was one of the fastest-growing fast-fashion retailers in America. It transformed its once penniless founders into billionaires, established itself as a powerhouse in the fast-fashion world, and, at its peak, made $4.4 billion in revenue.

The first mall store opened in Panorama City, California in 1989. In 1995, the first store outside California opened in Miami. The first international store opened in 2001 in Canada. By 2010, Forever 21 was huge force in the fashion industry with 500 stores across the U.S. The Changs were the 79th richest Americans and forever 21 made a name for itself as a place to get trendy clothes are rock bottom prices.

But the once blooming company has filed for bankruptcy.

So, what happened?

In 1981, Jin Sook and Do Won "Don" Chang move to Los Angeles from South Korea with no money, no college degree and speaking little English. To make ends meet, Jin Sook worked as a hairdresser while Don worked as a janitor, pumped gas, and served coffee. That’s when he noticed that "the people who drove the nicest cars and had the prettiest homes were all in the garment business."

So, on 21st April 1984, the Changs opened a 900-square-foot clothing store called Fashion 21. The couple took advantage of wholesale bargains to buy merchandise from manufacturers at a discount.

The business took off

Their system worked. The store made $700,000 in sales its first year. But the Changs hold on to their success, opening new stores every six months, which broadened the company's customer base at the same time. They also replaced the name to Forever 21 to highlight the idea that it was "for anyone who wants to be trendy, fresh and young in spirit."

The fashion giant understood two things; the millennial's and Gen Z have the need to constantly keep up with the latest fashion trends, and lack the income to support their ever-changing wardrobe. There was a hole within the fashion industry, and this is exactly where Forever 21 built its empire. The company's motto was to cultivate a huge following by selling trendy clothing for low prices. While this is something that everyone expects, Forever 21 was one of the first to do it. And they were the fastest.

Jin Sook was eventually approving over 400 designs a day. Which meant the company could sell trends as they were happening. Even if some of those designs landed Forever 21 in trouble, the result was that Forever 21 became one of the largest lessee of American malls, with 480 locations nationwide.

And by 2015, business was booming. Forever 21's sales peaked, with $4.4 billion in global sales that year and the goal was to become an $8 billion company by 2017. The USP of Forever 21 was its fast-fashion model. Even though the products of Forever 21 were always mass-produced, they still felt tailored because its stores only sold select styles for a limited time.

The Downfall

However, as the company focused on growing bigger, its styles became more "cookie-cutter." As a result, Forever 21 started to lose touch with its core customers, while competitors like H&M and Zara rose. The company's aggressive growth strategy would also lead to its downfall.

No longer the trendsetter, Forever 21 became the butt of the joke. It's also no longer the fastest in the game. There were Internet brands who were signing celebrities and influencer inspired styles at a rapid-fire pace. And as e-commerce was continuously booming, traditional retailers like Forever 21 have struggled to adapt to changing consumer behaviour.

In the new era of internet shopping, Forever 21 resumed opening new stores and even expanding existing stores to take over multiple floors with mens, childrens, and home-goods sections. Which could also help to explain why Forever 21's sales are estimated to have dropped by 20% to 25% in 2018. On top of that, the Changs, who still own the company, have lost more than $4 billion from their personal net worth.

The company overall is now $500 million in debt and considering filing for bankruptcy.

Forever 21 has already started downsizing its stores. And as one of the largest occupant of America's malls, a widespread shutdown of Forever 21 worsened what's already being referred to as the "retail apocalypse,"

But bankruptcy doesn't always mean the end for a company. In fact, it could give Forever 21

time to restructure and bounce back. In the times when customers spend their maximum time on internet, Genz and millennial shoppers are more attracted towards what they see on youtube and internet. The right strategy might help the company bounce back.