Forever 21, A Tale of Riches to Rags

“The founders did remarkably well until the business got too big for them to continue to do remarkably well by themselves.”

The year is 2011, and you have bunked your important lecture with your friends. You’re excited over-the-top to go to the mall you’ve already been to a million times probably. You reach the mall, and you see a long never-ending queue of teens like you. You curse yourself for not skipping lunch, but stand in the line hoping that the brand new Forever 21 store has enough space to accommodate all of the shoppers in line. Well it has to, because what else would you do with the money you saved for your birthday which was 11 months away? And eventually, you do end up in the store and you’re crying out of happiness that the self-control in spending money has resulted in you walking out with 2 dresses instead of one.

Eventually, the store no longer holds your attention because the same merchandise exists on the racks, since ages. The same discounts and the same old offers, Forever 21 has diminished itself to Unwanted One in your mind, and soon enough, it made an exit out of the mall, just the way it slid out of your mind.

Ever wonder why?

Founded in 1984, by husband and wife Do Won and Jin Sook Chang, Forever 21 became a rage in teenagers which spread like wildfire. The couple immigrated to United States from South Korea in 1981, with their daughters, who are currently top executives in the company. Both the daughters being Ivy League graduates, the elder daughter Linda is executive vice president and oversees landlord and vendor relationships with the father, while the younger daughter, Esther is vice president of merchandising and works with her mother.

To no one’s surprise, the brand boomed, understandably because of the apparel in latest trends at affordable prices. While they did offer a range, which was slightly titled towards premium pricing, most of the merchandise was designed was for the mass market. As soon as Forever 21 opened in a mall, it became common sight to see majority of the crowd, albeit female, carrying bright yellow bags with FOREVER 21 stamped boldly across them. For years, it was difficult for other brands to compete with the prices and styles that they offered but eventually the brand was no longer a favourite. In September 2019, the brand filed for bankruptcy and decided to shut its operations in 40 countries with about 350 stores spread across globally.

So, what went wrong?

A brand earning a whopping $4 billion in annual sales and employing 43,000 staff worldwide went to closing 199 stores in 40 countries, which amounts to 30% of the total.

Management Style

As an entrepreneur, it is important for any brand’s management to be experimental and updated with new marketing and management styles.

Chang’s insular management style, accompanied by the environment of a family managed business, did not have external directors and equity analysts to give them a reality check. The inner circle included another Korean-American couple: Alex Ok, Forever 21’s president and a former supplier, and his wife, Seong Eun Kim, who works in merchandising. The filing showed that the Chang family owned 99 percent of equity in the chain, while Mr Ok held 1 percent.

The distrust for any external entities was so severe that Forever 21 never opted for Initial Public Offering even if the brand multiplied by leaps and bounds. The same distrust led them to not hiring experienced executives. However, recently they recruited experts to overhaul parts of the business, then later ignored their recommendations on everything. The latest example being, Ariana Grande suing them for $10 million in a Trademark Lawsuit in September. Grande said that the company and herself did not get in a joint venture, but eventually the company did use her name, song lyrics and a model with an uncanny resemblance to Ariana which could potentially lead her fans to believe she was involved in the brand promotion in some capacity,

The Changs ran the company based on their Christian faith. The shopping bags were stamped with “John 3:16” which states “Show us how much God loves us”. Their management followed these beliefs rather than looking for experience.

The employees were never allowed to see the totality of the business performance. They were only given information about their own specific departments. Rivals saw the brand as monolithic and inscrutable. For any employee to have trust in an organisation, it is very important for the brand to maintain maximum level of transparency as possible.

Real Estate Investments

Opening enormous stores had always been Mr. Chang’s dream which came true as the company expanded aggressively and opened huge flagship stores. Forever 21 had long leases which expire in 2027-28. The brand always stuck to the malls and that caused a problem for them as there were no standalone stores to test the merchandise and customer buying intentions and patterns.

They expanded from seven international stores in 2005 to 262 a decade later. They also failed to understand the local labor laws and did poor research which made them commit some grave mistakes.
Examples-
(1) Failing to recognize that customers in some European countries shopped for winter merchandise earlier in the year than American consumers.
(2) They opened stores in Germany without realizing stores in that country remain close on Sundays. 

Forever21 faced other challenges like reduction of mall traffic, increase of e-commerce, renting and re-used clothing which was not efficiently tackled due to outdated management methods.

Brand Diversification

They came up with Forever 21 Red which targeted the group of mothers under 35 years of age. They initially opened 6 stores with a plan to expand 35 more stores. By 2017, several new Forever 21 Red stores were posting sales that were around 50 percent below company projections, internal sales reports show.

The beauty chain Riley Rose, was a way towards growth and to capitalize on the boom in Korean skin care products. It has 15 stores. It is safe to say that it was an expensive gamble as the brand struggled to maintain vendor relationships. Now Riley rose may end up as a store within Forever 21 stores.

Poor Inventory Control

The quick response to fashion trends often led to massive volumes of inventory and unorganized stores. Merchandising department made huge mistakes as merchandising was based on previous year’s sales and they bought too little inventory in 2017 and too much inventory in 2018. The merchandise was classified by “styles” rather than categories like tops, dresses etc which led to duplication.  

Losses Incurred

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. 

Forever 21 had about 6,400 full-time employees and 26,400 part-time employees when it filed, numbers that will likely shrink throughout the bankruptcy process. Forever 21 said that it would change how it merchandises, winnow its operations to the United States, Mexico and Latin America, aim to increase e-commerce sales to more than just 16 percent of the business and take other cost-cutting measures. When it filed, the company owed $347 million to its vendors. 

New Strategies

The Chang family will recruit new and experienced board of directors to grow the company. They have also added several new managers in recent months, including new chief financial officer.

Forever 21 has been amongst top 10 tenants of mall owners, so the landlords were flexible enough to cut them some deals. It owes 244 million dollars to vendors and landlords of which it has received only 75 million dollars as a part of the financing package.

What Forever 21 really needs right now is a customer base with highly disposable income, who buy the merchandise at full price. The high spender group is an effective antidote and would help the company to recover from relying too much on deep discounts which only attracted teenagers with limited allowances,

Forever 21 needs marketing strategies which will attract the older shoppers. Forever 21’s repositioning will enable the company to continue to be the leader in fast-fashion by delivering the curated assortment of fast fashion trends and merchandise that the customers expect. Nevertheless, they still have an incredibly strong and loyal customer base and social following that has continued to champion for Forever 21. The brand has come a long way, but it still has to do a lot of ground work to go forward.

Links:
https://www.businessoffashion.com/articles/news-analysis/forever-21-avoids-store-closures-after-rent-cutshttps://www.businessoffashion.com/articles/news-analysis/one-family-built-forever-21-and-fuelled-its-collapsehttps://www.businessoffashion.com/articles/news-analysis/forever-21-needs-older-shoppers-to-come-back-from-bankruptcyhttps://www.businessoffashion.com/articles/news-analysis/forever-21-bankruptcy-signals-a-shift-in-consumer-tastes

*************

This weeks recipe is for Attracting Customers to your brand-

• Keep your target customers in mind before starting. 
• Fill the pan with warm trust. 
• Mix it well with right amount of personalisation, don’t use one-size-fits-all approach. 
• Do not ignore or add excuses if it starts heating up, put a gift card or two to cool it down. 
• Add a pinch of personal touch with conversations.
• Keep progressing with the current ingredients of clients and give them more attention.
• Keep stirring with appreciation and add thank you mails and holiday cards whenever necessary.
• Don’t forget to add the spices of new trends and changes of the market.

SUGAR AND CATRINA ARE BACK!! SCROLL DOWN TO FIND OUT MORE!