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On late September of 2019, one of the multi-billion dollar giants in fast-fashion industry,
Forever 21 filed for bankruptcy.
Forever 21 was once among America's fastest-growing fast-fashion retailers.
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. So, what led to the brand's
downfall and bankruptcy?
Now the chain said it is planning to overhaul its global business, closing between 300
and 350 stores, including as many as 178 in the United States. It also plans to exit "most of its
international locations in Asia and Europe."
It announced that it will cease operations in 40 countries, including Canada and Japan.
All the Canadian stores, will closed by the end on November 2019 or early December of the
same year. While the closing American chains will continue to run until the end of 2020.
BACKGROUND
Forever 21, a billion-dollar teenage clothing emporium that rode America's mall boom
and bust began as the store called Fashion 21 in Highland Park, Los Angeles, in 1984.
South Korean immigrants Jin Sook and Do Wan Chang started the chain in 1984 with
$11,000 that they saved from working in low-paying service jobs, Jin Sook worked as a
hairdresser while Don worked as a janitor, pumped gas, and served coffee. Their first store was
a 900-square-foot space in Northeast Los Angeles that offered cheap and trendy clothing.
The couple first opened the store with the hopes to reach the young Korean-American
demographic. Using styles similar to those in South Korea, the store was hugely successful, and
within its first year, its sales totaled $700,000. It then opened more than 800 stores across the
globe, in 2016.
Fashion 21 was initially only popular with LA's Korean American community. But the
Changs leveraged their success, opening new stores every six months, which broadened the
company's customer base at the same time. They also changed the name to Forever 21 to
emphasize the idea that it was "for anyone who wants to be trendy, fresh and young in spirit."
The chain expanded quickly in suburban malls, and catering to young girls and women
with a mix of inexpensive basics. The company perfected the fast-fashion model, drawing in
customers with its frequently updated mix of clothes than what was offered at department stores
or single brands.
According to business insider, the company's key to success was quiet simple that is
selling trendy clothing for low prices. While this is something that today's consumers pretty
much expect, Forever 21 was one of the first to do it. And they were the fastest. According to
Forbes, the estimated value in 2015 was $4.4 billion, with Chang’s net worth of $6.1 billion
The then fashion 21 has grown into the clothing lines Forever 21, XXI Forever, Love 21
and Heritage with over 700 stores in the Americas, Asia, the Middle East and the UK. At its
peak, the retailer brought in more than $4 billion in annual sales and employed more than
43,000 people worldwide in hundreds of stores.
EVALUATION
Since the Multi-Billion, Private Company’s file for its bankruptcy, the fast-fashion industry
has been shocked and is making a lot of noise on the topic. Particularly, as to what went wrong
to the Forever 21’s operation.
There were a lot of speculation and of course, analysis of the company.
According to various articles of business experts and various papers of Newspapers
company. There are a few seen reasons for their fall. The papers such as of
Knowlegde.Wharton, New York Times, Business Insider and PowerRetail pointed quite clearly
these issues.
First, Too Many Stores, Too Much Space.
Or as I’d like to put it, Rapid Expansion that just became too much and too fast, without
thorough research and understanding of the locations.
This statement is backed with the New York Times article where they stated that
“Forever 21 made its biggest mistakes is in real estate”. In the years before and after the
recession, the company expanded aggressively and decided to open huge flagship stores.
According to Knowledge.Wharton. The stores became hard to fill with new merchandise,
then turn over, however, and saddled Forever 21 with long leases. Not only the number but also
the size of stores where a problem. Forever 21 stores are huge and all that space is expensive.
In addition, according rom New York Times, the retailer also raced into expensive,
massive new stores overseas without local expertise, as it surged from seven international
stores in 2005 to 262 a decade later. Two employees said that the chain often did not
understand local labor laws and made mistakes, like failing to recognize that customers in some
European countries shopped for winter merchandise earlier in the year than American
consumers. One employee said the chain moved into Germany without realizing stores in the
country typically closed on Sundays. It didn’t help that many of these areas were familiar turf for
H&M, which is based in Sweden, and Zara, whose owner is in Spain.
Forever 21 said in the filing that most of its international locations were unprofitable as of
2015 and that its stores in Canada, Europe and Asia were losing an average of $10 million per
month in the past year. Overall, the annual occupancy cost of Forever 21’s stores was $450
million.
SOLUTION/ RECOMMENDATION