In the series of business empires going bankrupt and the factors leading to it, Forever 21 was an addition in 2019. Therefore, in this case study, I will break down for you all the reasons for the demise of one of the best fast-fashion businesses in the United States.
Brief Introduction to Forever 21:
Forever 21 is an American retailer s fast-fashion and has its headquarters in Los Angeles, California,. It started as Fashion 21 in 1984 in LA. However, it changed its name to Forever 21. And now it has more than 700 stores in America, Middle East, Asia, and the UK. This brand deals with accessories, home products, men, children, women’s clothing lines, and beauty products.
Forever 21 gained its fame because of its trendy and fashionable products at low prices.
Founding Forever 21:
Its founders are South Korean immigrants couple Do Wan Chang and Jin Sook. They came to America with no college degree or a fortune. But they had $11,000 in savings. However, in the start, the husband worked as a janitor, waiter, and the wife as a hair-dresser. They had low-paying jobs for the next three years. Subsequently, they noticed that people with big cars were mostly in the business of clothing lines. This was the triggering point for a billion-dollar business idea.
Business Strategy in the Beginning:
In short, the couple opened a 900 square foot store on 16 April 1984 and named it Fashion 21. Meanwhile, the business strategy was to target wholesale retailers to buy the inventory at discounts and sell it with a renewed look in their store. Their strategy was successful and generated $700,000 in sales in the first year. And this is how the little store paved way for one of the most powerful cloth retailer franchises in the U.S.
Although in the beginning, it was only popular in the Korean American community due to the Korean style clothes. But with the opening of several stores nationwide and the diverse and trendy clothing lines, it gained popularity throughout the nation. Similarly, in the beginning, Forever 21 only served in women’s clothing but later added menswear as well as girl’s clothing, home-style products, and plus size clothing lines for women.
Overview of Sales:
Here is an overview of the sales of Forever 21 throughout the years:
|Year||Sales (in dollars)|
Overview of Stores Count:
Here is an overview of the franchise count throughout the years:
Meanwhile, Forever 21 created many subsidiaries:
- Forever21 International
- XX1 21
- Love 21
- Forever 21
However, despite its rising revenue and popularity, Forever 21 has been involved in many controversies:
- Labor practice lawsuit in 2001. It ended in a settlement in 2004.
- A class-action lawsuit in 2012.
- Fine of $100,000 in 2014 on “serious safety hazards.”
- Copyright lawsuits. Some ended in a settlement.
- Religious lawsuits
Bankruptcy of Forever 21:
Drop in Revenue:
- The company revenue dropped to $3.4 billion in 2017 from $4.4 billion.
Drop in Employee count:
- Moreover, its employee count dropped to 32,800 in 2017 from 43,000.
Drop in Sales:
- In conclusion, in 2019, the company suffered decline in sales up to 32%, ultimately leading to bankruptcy.
Therefore, Forever 21 announced Chapter 11 bankruptcy in 2019.
- Besides, Forever 21 declared to close its international and 178 US stores. Also, it declared no operations in 40 countries.
- Moreover, Forever announced external stakeholders in the company.
Executive VP’s Statement:
Also, Linda Chang, Executive Vice President, stated that filing for Chapter 11 bankruptcy was essential to secure the company. It will enable it to reorganize the business and reposition it.
Therefore, the court approved the bankruptcy.
After the Declaration:
And in February 2020, Forever 21 announced the selling of its $81 million assets to external stakeholders:
- Simon Property Group
- Brookfield Properties
- Authentic Brands Group
Factors that led to the Bankruptcy:
The 3 key factors that led to the bankruptcy of the fastest-growing retailer in the U.S were:
- Increasing store count hastily
- Lacking focus on e-commerce
- Lacking sustainability planning
Increasing store count hastily:
Forever 21 opened several stores throughout the world, increasing from 47 in just six years. Moreover, most of Forever 21 around the world were spacious and more than one story. Despite other retailers downsizing their stores due to the “retail apocalypse,” Forever 21 opened new stores that were bigger in size. It was the biggest mistake. Because it increased their rents and maximized their cost. This business strategy, as opposed to the retailers saving up their space to minimize their costs.
Lacking focus on e-commerce:
Forever 21 mainly targetted young people. And with the evolution of e-commerce, young people are more inclined towards buying online rather than going to physical stores. Here Forever 21 committed another big mistake. It didn’t focus on reinforcing its e-commerce platform. Despite the shift of customer behavior towards online shopping, Forever 21 neglected the trend and hence faced the demise. It had 16% of sales coming from the online stores, but it didn’t understand that this sales figure needed to be increased as the trend was shifting. It also needed to focus on what their competitors were doing in their e-commerce platforms, which gained them popularity and snatched the fame from Forever 21.
Lacking sustainability planning:
Due to all the climate change hazards and the masses abiding by the campaigns against them, Forever 21 lacked sustainability. Since fast-fashion produces 21% of water waste and 10% of carbon emission, people go against all the brands that do not take these factors into account. Similarly, Forever 21 didn’t serve sustainable clothing. Hence the young customers shifted their buying behavior. Not only Forever 21, but many other brands like H&M and Zara faced this sustainability issue.
In conclusion, Forever 21 went from the biggest retailer business empire to bankruptcy due to failed business strategies and shifts in customer behavior and world trends.
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