Recently a number of critics have highlighted that many retailers hit trouble whilst in the hands of PE firms and hedge funds but if recent reports about Forever 21 being on the brink of bankruptcy are to be believed then it bucks this trend as it’s still owned by its founders, Do Won and Jin Sook Chang.
Do Won and Jin Sook Chang’s Forever 21 chain was the stuff of retail legend, the American dream story—having invested $11,000 of their savings to start the business and they then grew it to 600 stores across 57 countries with over 30,000 employees... but the dream is fast becoming a nightmare.
The company has been forced to seek rent reductions and bankruptcy protection in recent years but new reports claim it’s not enough and the company is on the brink of filing for bankruptcy after the continual poor trading performance.
The retailer grew aggressively and was continuing to open new stores as recently as 2016 so what went wrong for the retailer and how can others avoid the same fate?
Changing Consumer Attitudes
Throughout the Forever 21 growth story, young teen customers have been the focus and this customer segment’s shopping behaviors are changing rapidly. Alongside becoming more focused on the sustainability of the products that they buy this group has moved past the idea that shopping is a form of entertainment reducing the leisure time they spend in stores significantly. For any retailer with a large store footprint, this presents a big problem unless able to diversify quickly into an omnichannel business.
Poor Online Offering
The Forever 21 website really was the poor relation to their store experience having had little attention spent on developing the site until very recently. Thus the design is dated when compared to competitors like H&M and Zara—something that modern-day consumers are no longer willing to countenance.
Customer Disconnect
As the brand expanded, the offering in the stores became more varied as the company looked to unlock additional growth by adding male products and ranges for older consumers. This approach can work well when executed well but in many cases, it leads to a confusing product offering, which in turn quickly turns off the loyal customer base. Nobody wants to go into a store and struggle to find something that is actually designed for you?
Increasing Competition
The sub-21 female customer demographic has become the most competitive in retail due to a rapid influx of mainly digital-first competitors in recent years. Alongside giants like Boohoo and Missguided in some of their markets Forever 21 has had to battle the rise of microbrands being set up and promoted by influencers. Individually they might not be a huge worry but the sheer volume of these brands has eaten away at Forever 21s sales.
Founder Control
It has been reported that the desire for the founders to retain overall control of the business in any restructuring process is a blocker in some of the restructuring talks the business has been holding. It was also reported by Bloomberg in June that the company had asked some landlords to take a stake in the business as a way of raising the funds the business needs to continue to trade.
The story of Forever 21 isn’t currently an unusual one in the retail industry, and sadly it’s unlikely to be the last business to face a similar fate in the years ahead. But when the reasons for its issues can so clearly be seen, it should serve as a lesson for others in the months and years ahead.
