Forever 21- what brought this America’s fastest-growing fashion retailer to the verge of Chapter 11

Who hasn’t heard of Forever 21 Inc.? It is one of the iconic brands of fast fashion, often the central store at shopping malls across the world. Forever 21 was founded in 1984 and was well known for its fast-fashion, affordable apparel like $5 tops and $20 dresses.

But recently Forever 21 shocked fashions and retail news followers across the world as it filed for bankruptcy under Chapter 11. The company’s spokesperson announced that it plans to close down 350 stores worldwide, including 178 stores in the U.S.  While the company will continue to operate its website and hundreds of brick and mortar stores, it is gunning for major reorganization. This has a massive impact on the thousands of employees across the world, as operations will halt in nearly 40 countries.

Yet, many commerce experts say they could see the downfall coming. Forever 21 was hugely popular among teenagers in the 2000s for the affordable and catchy designs. Still, the popularity waned and the signature bright yellow shopping bags became a rare sight as the Gen Z customers switched over to eCommerce and street fashion brands.

What are the reasons for Forever 21 bankruptcy?

1. High investment in brick and mortar stores

Forever 21’s website acknowledges that it is the fifth-largest specialty retail chain in the U.S. Despite plans to become an $8 billion company and open 600 stores in the near future, the aggressive expansion rate came with a fair share of investment and debt.

For instance, an average Forever 21 store is nearly 38,000 square feet, which comes to around $247000 in rent at the rate of $6.50 per square foot. Now compare this to an online store that probably sells more with a fraction of the investment. The brick-and-mortar model is no longer sustainable at this rapid expansion scale.

2. Stiff competition online

Digital transformation has impacted retail more than any other sector. Those who missed the bus could never catch up. There is an entire generation of millennial and Gen-Z shoppers that prefer shopping online and are devoted to internet fashion giants like ASOS, Boohoo, Nordstrom, or Urban Outfitters. The world of fast fashion is exploding with new, cheaper and better options every day, and Forever 21 bore the brunt of this competition.

3. Controversy and reputation management

The online shopper may look for a better deal, but she is discerning. Social media analysis website Sprout Social claims that nine out of ten customers stop buying from brands that are not transparent.

Unfortunately, Forever 21 has been mired in controversy with back to back lawsuits that include trademark and copyright infringement among the allegations.

It didn’t help that Forever 21 tried to make a knockoff version of every other brand in the market, from fashion biggies like Gucci, Adidas and Puma to small, independent brands. Not surprisingly, Forever 21 has been in courtroom battles forever. In fact, the most famous case is the recent Ariana Grande lawsuit for $10 million for “stealing” her image and resemblance.

4. Losing relevance

In an economy that has an aware customer base, fast fashion is destined to die a fast death. A new breed of urban, conscious shoppers opposes everything that the brand stands for.

A desire for sustainable and fair trade is at a crossroads with fast-fashion retailers that use criminally cheap labor and are bad for the environment. Forever 21 needed to rebrand and be more conscious of customers’ desires to stay relevant.  For instance, H&M recognized this change in shopper value and changed its strategy to more sustainable and ethical.

The impact of eCommerce on Forever 21 Inc.,

But Forever 21 is not alone in a losing battle against eCommerce competition. Since early 2017, more than 20 retail businesses in the U.S, including the likes of Toys ‘R’ Us and Sears Holdings Corp have filed for bankruptcy. Facing fierce competition from eCommerce giants such as Amazon and the like, brands failed to recognize the disruptive power of online shopping in time.

And while Forever 21 does have an eCommerce store, but the strategy and presence are not as strong as many of its competitors that include Zara, H&M, and Amazon. In 2019, the company only recorded 16 percent of its overall sales from its online presence.

Competitors versus Forever 21: Where they went wrong

The Prophet Brand Relevance Index (PBRI) is a review that tracks the brands which matter the most to the consumers. According to this annual study, retailers that rank well on the Index are the brands that have beliefs and values that align with the customers. These are brands like REI, Sephora, Etsy, etc.

Even in fast fashion, Forever 21’s rivals like H&M, Zara, and similar continue to see strong year on year growth as they show a commitment to ethical sourcing and sustainability in their business model.

Where competitors surged ahead by understanding the consumer psyche and collaborating with designers and influencers, Forever 21 was slow to make a move.

Lessons to be learned from Forever 21 

Success teaches many things, but failure even more. There are many lessons to be learned from the Forever 21 story. In the highly disruptive, competitive climate, retail businesses need to change their game and adopt more digital measures to reach their target population. Here are a few takeaways from the Forever 21 story:

• Stay one step ahead of your competition
• eCommerce is where the market is
• Challenge the status quo
• Understand your target population
• Invest in relevant and targeted marketing
• Grow at a steady pace

Conclusion

Fast fashion is not dead, yet. But lack of relevant and targeted marketing, poor  use of digital channels, and a reputation that was built on ‘copying’ are what damaged Forever 21 the most.

Retailers can learn from Forever 21’s example and revamp their online strategy to accelerate their digital transformation.