What happened to Forever 21?

Forever 21 is a North American fast fashion retailer founded by the husband and wife team Do Won Chang and Jin Sook Chang in 1984, making $700,000 in revenue during its first year and by becoming a global player with over $4 billion in revenues and across 480 locations in the US alone by 2015. Only four years later, a 32% drop in global sales forced Forever 21 to file for bankruptcy. Several factors, such as too aggressive expansion, lack of proper online commerce strategy and lack of focus might have contributed.

Background

Forever 21 is a North American fast fashion retailer founded by the husband and wife team Do Won Chang and Jin Sook Chang in 1984. Both were poor immigrants working menial jobs who recognized that the wealthiest people in their area were in the garment business.

The first store – called Fashion 21 – opened in the Highland Park district of Los Angeles and was targeted at the local Korean-American community. It was funded with $11,000 – a small sum of money but everything the two siblings had at the time.

Fashion 21 was an instant success, amassing $700,000 in revenue during its first year. More stores were continuously added over the years, with global sales peaking in 2015 at $4.4 billion across 480 locations in the US alone.

Only four years later, a 32% drop in global sales forced Forever 21 to file for bankruptcy. Most of its North American stores would close down, as would international operations in 40 countries.

How did Forever 21 fall from grace so quickly?

Aggressive expansion

As a fast-fashion retailer, the success of Forever 21 was reliant on mass-producing clothing items that still felt unique and trendy to the consumer buying them.

However, the continued focus on expansion meant more people would end up wearing the same item by default. Styles and trends started to become more mainstream, eroding the company’s competitive edge and causing it to lose customers to rivals such as H&M and Zara.

Furthermore, the company was unable to adequately invest in its ever-growing supply chain. This meant it took more time to release fresh styles into the market – a major disadvantage for a self-described fast-fashion retailer.

eCommerce

Another victim of the fast and aggressive store expansion policy was eCommerce. 

Without a proper online retail strategy, Forever 21 quickly alienated its core millennial market. In fact, it was still opening new stores in 2016 as competitors strengthened their online presence.

Around the same time, general foot traffic in brick-and-mortar stores started to decline.

Product differentiation

Forever 21 was also known to acquire large stores from bankrupt retailers such as Sears and Borders.

Some of these stores were extremely large, with a 90,000 square foot store in Times Square being the most obvious example. With a glut of floor space and a focus on growing revenue, Forever 21 began selling men’s clothes, cosmetics, lingerie, and makeup in addition to its core offering. 

Unfortunately, this gave Forever 21 more of a department store feel than a specialized fashion chain. If nothing else, this move put the company in direct competition with established players such as Target and further alienated its core demographic.

Controversies and lawsuits

Forever 21 was sued by employees in a Los Angeles factory over allegations of sweatshop-like working conditions. Workers claimed to receive below minimum wage and in some cases, no wage whatsoever. The case dragged on for three years until a settlement in 2004 with the company suffering reputational damage. Further damage occurred in 2014 when the company was fined for safety hazards in some of its stores.

Multiple designers and personalities also claimed Forever 21 copied their work, including Gwen Stefani, Ariane Grande, and Diane Von Fürstenberg. 

As if that wasn’t enough, the company was also caught using pirated copies of Adobe and Autodesk software and selling jewelry containing toxic cadmium.

Collectively, these events cost the company millions in settlements and immense reputational harm.

Key takeaways:

  • Forever 21 is a North American fast-fashion retailer. A focus on rapid growth helped the company reach $4.4 billion in sales revenue in 2015, but Forever 21 ultimately fell as quickly as it had risen.
  • The expansion-centric strategy of Forever 21 came at the cost of effective supply chain management and a strong online presence. Both are integral to the continued success of any fast-fashion company.
  • By acquiring large stores from bankrupt department brands, Forever 21 was forced to sell a wide range of inventory to fill floor space and justify its growth strategy. This alienated an already disenfranchised millennial target audience.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"