The Startup
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The Startup

Why Forever 21 Failed

More than three decades after introducing ‘fast fashion’ in the US, apparel retailer Forever 21 filed for bankruptcy Sunday evening.

Image Source: The Gardens Mall

Although it’s not yet the end for Korean-owned Forever 21, it will close down 178 US stores out of the 800 stores it currently runs globally. The retail company built by Korean immigrants Do Won Chang and Jin Sook Chang in 1984 paved the way for fast fashion shopping. Fast fashion is characterized by the incessant turnover of new designs that people can buy for a very low price than the original designers.

Forever 21 catered to young adults who have a penchant for smart, trendy, and affordable clothes and accessories. Used to be popular with the 21-year-olds who are looking for fashion bargains a decade ago, the fast-fashion retailer did not get the same interest from the 21-year-old shoppers of today. It’s fierce rivals Zara and H&M have updated their story, purpose, and relevance to appeal to the millennial market, Forever 21 stubbornly hold on to its obsolete business strategies. And now, it’s paying for the consequences.

Forever 21 will exit Asian and European markets but operations will continue in the US, Latin America, and Mexico. The company aims to close a total of 350 stores worldwide, adding to more than 7,500 US stores that closed this year.

What caused the downfall of Forever 21?

Forever 21 reached its peak in 2015 with the founders received a combined net worth of $5.9 billion. Yet the rise of fast fashion competitors like H&M and Zara took a chunk out of the former’s customer base.

Other factors that contributed to Forever 21’s demise included:

1. A growing number of Gen Z and millennials buying secondhand or vintage clothing to lessen the carbon footprint.

2. The increasing preference for online shopping allowing consumers to buy clothing and accessories right in the comfort of their homes.

3. Although Forever 21 has an online store, it’s website is not set up for optimal conversions.

4. Forever 21 is renting bigger spaces and stocking rack after rack of cheap clothes from China leaving them with high overhead costs and excess inventory. One of the drawbacks of a traditional business model & the reason dropshipping businesses are on the rise!

5. Millennials are increasingly embracing sustainable fashion with 73% of them willing to pay more for sustainable brands according to a Nielsen report. Commitment to the environment can influence purchase decision by 45%

The waning interest for in-store shopping, the shift to eco-friendly fashion, and the high rental costs have taken their toll on the company forcing Forever 21 to file for bankruptcy. With 80% of Americans shopping online, the company cannot withstand the impact of the rising eCommerce and online shopping industry and has succumbed to the retail apocalypse that began in 2010.

What brands can learn from the Forever 21 tragedy?

There are important lessons that brands, particularly in the fashion niche can take from Forever 21’s experience and these include:

· Analyzing the trend and competitors.

Brands should assess where the trend is going, what are the consumers’ preferences, and what the competitors are doing. Flexibility and adaptability are essential for a brand’s survival.

Forever 21 did not evolve with the changes in the market and its inability to cope with competitors to meet consumers’ demand has caused its downfall.

Online sales are increasing continuously with 64% of consumers preferring shopping online than going into a brick and mortar store. Online shopping, after all, offers them the ability to shop at a lower price anytime they want without leaving their homes.

· Reducing operational costs.

Forever 21 persisted on opening stores in shopping malls despite the dwindling foot traffic. It even opened big-box format stores with high rental rates making it the 7th most expensive real estate tenant in New York City. A brand that is keeping an eye on the market direction should reduce overhead costs when profits are not coming in as they used to be. This way they’ll be able to prevent further loss as they strategize on how to get back on track and stay in the competition.

· Staying up with the times.

Younger shoppers nowadays are looking for high-quality products with low price tags. As consumers are more aware of the impact of producing clothes and footwear and throwing away synthetic materials on the environment, more and more are shifting to sustainable brands. Fast fashion retailers have been criticized for their contribution to harming the environment, the reason why Forever 21 fashion rivals Zara and H&M, as well as other brands, are striving to become ethical players by integrating sustainability into their businesses.

Mintel reported that 56% of US consumers stop purchasing goods from companies they thought to be unethical. Ethical issues have become important to the consumers of today as shown by a Statista survey in which 87% of respondents would purchase from a company that supports an issue that they cared about. To stay competitive, brands should consider the beliefs and values of the consumers not just their lifestyles to meet their expectations.

Key Takeaway

Forever 21 failed because it did not consider the sustainability of its business. It did not analyze thoroughly market trends, competitor strategies, and consumer expectations. As a result, it was unable to adapt and innovate and perished in the end. Whether Forever 21 can recover from the severe loss or not…only time will tell. If you have an ecommerce business, make sure you stay with the trends, use a professional product research agency, to know what is selling right now, don’t leave the future of your business to chance.

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David Linder

David Linder

Founder of ProductMafia.com winning dropshipping products uploaded daily.

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