Clothing retailer Forever 21 just announced that it would file for Chapter 11 bankruptcy protection. It plans to close 178 stores in the U.S., as well as most of its stores in Asia and Europe. The chain has secured $350 million in financing which will "facilitate a global restructuring that will allow the Company to focus on a profitable core part of its operations," according to a statement the company released. "This was an important and necessary step to secure the future of our Company, which will enable us to reorganize our business and reposition Forever 21," according to Linda Chang, executive vice president and daughter of the chain's founders Do Won Chang and Jin Sook Chang.
Forever 21's bankruptcy filing is part of an ongoing "retail apocalypse," according to Bloomberg. And indeed, such household name chains as Sears and Barney's New York have filed for bankruptcy protection, while Payless ShoeSource and Charlotte Russe have shut down altogether. There's no denying that bricks-and-mortar stores are in trouble everywhere. Back in April, the New York Times reported that the 5,994 store closings announced for 2019 had already surpassed the total store closings for 2018 in the U.S. Mall traffic is down, and no one expects it to come back.
Still, analysts point to Zara, which competes with Forever 21 (and H&M) in the fast clothing space, and appears to be doing just fine. There's no question that the environment out there is punishing for bricks-and-mortar retailers, but it's also apparent that Forever 21 made some mistakes that helped hasten its descent into the red.
1. It grew too fast.
"Thou shalt not grow too fast," is a caveat often given to startup founders and Forever 21 illustrates why. Linda Chang herself flagged that as one of the chain's biggest mistakes, noting that the chain went from having stores in seven countries to 47 countries in less than six years.
2. It lost focus.
Forever 21 started out as Fashion 21, an inspiring rags-to-riches immigrant story (its founders came from South Korea) with a simple mission: Provide inexpensive, fashionable clothing to people in their 20s and older people who wanted to feel young. But the chain recently added Riley Rose, a beauty chain, and it has begun selling men's and girl's fashions as well. Often all of the above are combined in one large store, making it harder for teenagers in a hurry to quickly find the fashions they were seeking.
3. It competed on price.
Yes, Forever 21 has great prices--it's known for tops costing as little as $5, and jeans for $7.90 at its F21 Red stores. But competing on price alone is always risky as a long-term strategy. Young people for whom a $2 camisole could be compelling might be just as likely to shop on thredUP, Amazon, or Target, which has been expanding its fashion line. As one 18-year-old told the Los Angeles Times, "At this age, when you're going into internships, you need nicer clothes and ones that last, so you can't really shop at Forever 21."
4. It expected things to stay the same forever.
Business leaders will tell you that one of the hardest things to do is make major changes to your business in anticipation of coming trends even though everything is going fine at the moment. Forever 21's bankruptcy is a good illustration of why. One industry expert told the New York Times that the company had bet its future on the notion that the fast fashion industry of the next decade would be the same as the last decade and that the company would prosper if it had stores in the right locations and continued to generate interest with the fashion spinoffs it created. But today's teenagers are more likely to buy second-hand items and to gravitate toward brands that can point to sustainability or environmental concern as a plus. That's something Zara has done--when Greenpeace called the company out for toxins in its clothing, it pledged to remove them.
Perhaps a few changes to keep pace with evolving attitudes and priorities among young people might have helped Forever 21 avoid needing bankruptcy protection. Unfortunately, we'll never know.