Forever 21 is a world-renowned brand with over 600 stores located in more than 572 locations globally.
Question:
FOREVER 21 COMPANY BACKGROUND
The store was first known as Fashion 21 when it was established in Los Angeles on April 16, 1984, by married South Korean immigrants Do Won Chang and Jin Sook Chang. In the Highland Park neighborhood of Los Angeles, at 5637 N. Figueroa Street, stood the original 900 square foot business. Funded by $11,000 savings, designs similar to those found in South Korea were marketed and targeted to the Korean American community in Los Angeles. (Wikipedia, 2022).Over the following few years, Chang opened even more stores and eventually rebranding the chain as Forever 21. Their aim was to deliver new fashions to the working masses at low prices.
The mall-based store first opened in 1989. At this point, the company had 11 of its units averaging 5,000 square feet. All were in California until one opened at Miami's Mall of Americas in 1995. By the end of the decade, Forever 21 had 100 stores, some of them 9,000 square feet or more. (C. Ingram)In 2003, Forever 21 acquired Reference Clothing Company, a smaller, bankrupt competitor, for $3.5 million. The company had grown to three dozen units before collapsing in debt. Forever 21 would rebrand 14 of those stores to the Forever 21 name. Forever 21 had 153 units in operation prior to the deal. (C. Ingram)
The company opened its first overseas store in the UAE in November 2004. Forever 21 earned 925 million in 2005. (C. Ingram)In March 2005, Forever 21 acquired most of the assets of Gadzooks Inc., one of his main competitors, for $33.1 million. The acquisition added at least 150 units to Forever 21's existing approximately 200 stores in 36 states. Forever 21's immediate purchase plan was to keep the Gadzooks brand alive. (C. Ingram)
The company peaked in 2015 with over 600 stores and 5.9 billion. Forever 21 has been greatly successful byrotating inventory quickly and keeping prices low. But the core teendemographic is flocking to online shopping. (Lamrre, 2020)But things would soon start going downhill from there. Increasing competition from other fast-fashion brands has caused problems for the family-owned Forever 21. In 2018, Forever 21 began downsizing, closing many European stores in Amsterdam, Dublin, and the UK, as well as several stores in North America. Forever 21 has not disclosed its financial situation, but store closures in major global markets suggest that the teen retailer is struggling to find a foothold in an increasingly competitive market. In September 2019, the retailer announced it had filed for bankruptcy. (Business insider, 2019)
FOREVER 21 COMPANY BUSINESS CONCEPT:
Forever 21, Inc. operates a retail chain of clothing stores targeting teenage girls and young women. It has about 400 stores, most of which are located in shopping malls. Forever 21's specialty is cheap chic: delivering the latest trends at affordable prices. Private label knockoffs make up much of its inventory.
While other clothing companies sourced their products overseas to keep costs down, Forever 21 preferred to work with local manufacturers. This has allowed the company to bring the latest fashions to stores long before its competitors.
In addition to the original Forever 21 chain, the company's Forever XXI flagship store is larger and more diverse, including men's items. A separate chain, For Love 21, specializes in accessories. About 60% of production is done in the USA. This allows the company to launch new runway trends in a matter of weeks. (C. Ingram)
The company opened 200
stores globally in the year 2005 to 2015. In 2019, Forever 21 had a total of 785 stores
globally. The company admitted that the majority of the international stores were
unprofitable due to variances in local fashion trends and elevated labor costs. Matters
became worse when the company's poor financial standing started to leak. According to
New York Post, Forever 21 is paying its vendors about 30 days late. But Forever 21
declined to give comments from such reports. The global sales fell from $4.1 billion in
2014 to $3.1 billion in 2019. The company said that the stores in Canada, Europe, and
Asia had been losing $10 million per month on average from 2018 to 2019
The company opened 200 stores worldwide between 2005 and 2015. In 2019, Forever 21 had a total of 785 stores worldwide. The company admitted that the majority of its international stores were unprofitable due to differences in domestic fashion trends and rising labor costs. Matters became worse when the company's poor financial standing started to leak. Forever 21 is about 30 days behind on payments to suppliers, according to the New York Post. But Forever 21 declined to issue a statement on such news. Global sales fell from 3.1 billion in 2019. Stores in Canada, Europe and Asia lost an average of $10 million each month from 2018 to 2019, according to the company.
Big stores, both internationally and domestically, have grown to be a burden for Forever 21. In the past, more customers would enter a larger store than a smaller one. Without the Internet, businesses would have needed thousands of square feet and aisles of shelves to display all of their goods. After the Great Recession hit some American retailers in 2008 and 2009, Forever 21 said it jumped at the chance to get vacant stores at lower prices.
CLOTHING INDUSTRY:
By the end of 2015, online shopping for apparel had become popular. Retailers offered mainstream consumers affordable replicas of runway designs while producing clothing more quickly and at lower costs than ever. Shoppers around the world weren't buying clothes like they used to, and businesses weren't making clothes like they used to. Between 2000 and 2014, worldwide clothing production more than doubled. "The ability to now capture on the runway within seconds. Take the picture, mock stuff up, duplicate, go back to the design team, make a fabric that is reasonable that we can afford to do price of the X. Launch it. And that's what happened. So that the entire digital landscape has contributed because of the ease of technology, the use of technology" - said Vincent Quan, Associate Professor Fashion Institute of Technology.
E-commerce has now altered the requirement for such enormous size and scale. Although the fashion industry is shifting online, Forever 21 acknowledges that its online sales as a share of total sales are not as high as those of its competitors. Since the debut of its website in 2005, Forever 21 has claimed that just roughly 16 percent of its overall sales are now made online. Analysts would contend similarly. They are focused on stores and lag behind online gaming.
FOREVER 21'S COMPETITORS:
As the US saw an increase in the presence of fast fashion retailers, they took bites out of Forever 21's business. In the US, Forever 21 had a decline in sales of shoes and clothing in 2016 as H&M and Zara slightly increased their market share. "Whereas Zara and H&M being able to be successful is they make a foothold here and then the scale of the market creates that chimney effect where it really allows them to take off rather quickly. And once they have established a foothold here and establish the logistics and merchandising capability of the way that they're able to very quickly start to add to that base of business without having to recreate a lot of new infrastructure." Greg Portell, Lead Parter A.T. Kearney said.
As of 2018, H&M and Zara are the world's largest apparel and footwear retailers, while Forever 21 finished 2018 in 17th place permanently with a 0.3% share of the apparel and footwear industry. Zara had 1.2 percent market share, H&M had 1.6 percent, and Japan's Uniqlo, which launched in the US in 2005, had 1.1 percent. However, while these competitors gained popularity abroad, Forever 21 didn't receive the same response.
FOREVER 21'S FAILURE
The Changs probably didn't realize in 2015 that their business was rapidly declining. Forever 21 employed 43,000 people and generated 8 billion in sales that year. Another so-called peer, Urban Outfitters, made 5.9 billion.
The fundamental issue is that Forever 21 isn't all that well-known outside of the United States. It grew stores too big and too quickly, failing to localize and comprehend fashion taste in other nations. Since 2014, the worldwide division of Forever 21 has been losing money, burning through more than $100 million annually. Additionally, it hasn't been earning enough money in America to make up for those losses. The Chang family, who own forever 21 but are also growth-hungry, never stopped broadening the company's global reach.
Between 2005 and 2015, the company opened over 200 stores worldwide as part of its expansion plan. Forever 21 now plans to exit most of its overseas operations in Asia and Europe and close dozens of stores around the world. The company has not provided specific numbers for these plans, as discussions with landlords are ongoing and Forever 21 is still fighting for lower rents.
By 2017, the couple had stated, they hoped to achieve hundreds of new outlets and double their company's sales. But those dreams will never come true. Forever 21's international operations were in turmoil. Its styles weren't resonating in markets where it failed to dig in and understand the type of clothes local consumers were looking for. The company also didn't seem to do enough market research into the shopping habits of overseas consumers.
Forever 21 admitted, it ended up not buying enough inventory in 2017 and then bought too much in 2018. It would end up with duplicates of the same styles when it didn't need them. That led to another big problem, Forever 21 stores across the world felt too cluttered. "With the physical presence, when you got to a Forever 21, whether it's in Jakarta, whether it's in Shanghai or whether it's New York, the stores look to disheveled. Shoppers also increasingly started calling out Frevert 21's clothing as cheap, and Zara's was seen as a higher-end, but still affordable option. The Chang's finally fell from Forbes billionaire ranks in July of 2019, a final prelude to Forever 21 heading to the bankruptcy court.
POST BANKRUPTCY
After filing for bankruptcy, Forever 21 was acquired by Authentic Brands Group (ABC), a global brand development, marketing, and entertainment company, the acquisition was valued at 12.5 billion in global annual retail sales. In 2021, JCPenny entered a deal with ABG to add products from Forever 21 to JCPenney's merchandise assortment, products will be both in-store and online. This will further help boost sales and improve the distribution channel for Forever 21.
Identify the key marketing issues that led to Forever 21 going bankrupt, what could have been done to prevent going bankrupt?
Expert Answer:
There were several key marketing issues that led to Forever 21 going bankrupt Here are some of the most significant issues 1 Failure to Keep Up with C... View the full answer
International Marketing
ISBN: 9781506389219
2nd Edition
Authors: Daniel W. Baack, Barbara Czarnecka, Donald E. Baack
