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Forever 21’s Bankruptcy Hints at Shifting Priorities of Consumers

Forever 21, the leading retailer that made fast fashion an undeniable trend in the US, announced it is filing for bankruptcy. The private, family-held retail chain store will wrap up its operations in Canada, Japan, and 38 other countries, as a part of the filing. Furthermore, the company will close around 178 outlets in the US.

This is a huge blow to the company that has personified the American dream.

The bankruptcy suggests the shopping malls are losing their charm and there is an upward shifting in consumers’ shopping preferences. That said, the insolvency also puts a spotlight on the huge gap between low-quality American shopping centers that are losing customers and lucrative tenants, and top malls that are still drawing foot traffic in great numbers.

Why Forever 21 Suffered Such a Mauling?

According to Linda Chang, the executive vice president of Forever 21, a key reason for losing the business was that they “went from seven countries to 47 countries” in less than six years. She said it made things complex because at the same time the retail industry witnessed a huge transformation—malls losing traffic and sales shifting to online channels.

Forever 21 opened several stores at a breakneck pace before and after the great recession. At the time, bigger was considered better. Thus, the company spent an exorbitant amount to develop its stores, so these outlets could also serve as its main marketing vehicle. But it didn’t stop there.

While the target audience of the business were teenagers and young women, the company thought its products are meant for the entire family.  As a result, it opened huge flagship stores across major US cities, including the one in Times Square colossus that has four floors and spans over an area of 90,000 square feet. The retail chain occupied several spaces that were vacated by bankrupt chains like Gottschalks, Mervyn’s, etc.

But aggressive expansion and ignoring online competition weren’t the only two reasons which led to the decline of the empire. The attempt to offer more merchandise also proved too much. Forever 21 launched F21 Red back in 2014. Plus, it had plans to sell basics like camisoles for $1.90 and jeans for $7.90.

The company revealed its e-commerce accounts for 16% of the total sales, while the profit has fallen from $4.4 billion in 2016 to $3.3 billion in 2018. The number of employees has also dropped from 43,000 in 2016 to about 32,800. Now Forever 21 is looking to achieve a target of $2.5 billion in annual sales once the company goes through restructuring.

What does Forever 21 Decline mean?

Forever 21’s insolvency has raised some grave questions around factors that are affecting retail performance, especially fast fashion. The industry has been under fire for the past many years owing to the environmental impact of disposable clothing and concerns surrounding workers’ payment and safety.

Most importantly, the debacle points out young buyers are increasingly turning towards brands and goods that claim sustainability, says Wendy Liebmann, the CEO at WSL Strategic Retail.

Liebmann thinks Forever 21 presumed demand for fast fashion will continue to grow the same way as it had in the past and they just need to have their stores in the right locations. But this idea didn’t appeal to the current shoppers.

What’s Going to Happen with Forever 21?

Forever 21 enjoyed massive success in the early 2000s as the majority of its merchandise was an imitation of leading designer styles, and the company made them available at incredibly low prices. In fact, the retail chain joined hands with prominent brands like H&M and Zara to make disposable clothing widely available to US buyers, particularly young women as they were more inclined to new wares.

But at present, Forever 21 is in talks with the landlords of its stores to chart out the future action plan as it hasn’t paid the rent in September to preserve capital. The company believes it can rehash the leases on its US stores once they file the bankruptcy.

Though men’s and girl’s merchandise still looks promising to Ms. Chang,  going forward they will drop the idea of selling cosmetics, home décor, and electronics.

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