Business and consumer trends are evolving faster than ever, and what was once a thriving business even a few short years ago can suddenly look like a plodding dinosaur.
The Oct 7, 2016 issue of Forbes magazine featured the new Forbes 400 list of billionaires, and gracing the cover of the magazine were Jin Sook and Do Won Chang. Sook and Chang are the founders and owners of fashion retailer Forever 21.
Chang grew up in South Korea and moved to California in 1981 with his wife, Jin Sook Chang. He never attended college and worked in coffee shops growing up. After settling in California, Jin Sook Chang worked as a hairdresser while her husband worked at a gas station. The couple cobbled together $11,000 and opened their first apparel retail store, which they named Fashion 21, in 1984.
The company grew rapidly, and the chain experienced big success in the early 2000s with its large offering of merchandise that imitated current designer styles at rock-bottom prices. It joined Zara and H&M in making fast, disposable fashion widely available to American shoppers. The chain initially focused on young women, who were exposed to new pieces and styles every time they entered a store.
The Forever 21 retail concept helped to popularize “fast fashion” in the U.S. with its bustling stores and $5 tops and $20 dresses. “Fast fashion” retailers were outplaying the once-popular teen retail store chains such as The Limited, Abercrombie & Fitch and American Eagle, whose products were ordered up to a year in advance. The essence of fast fashion was that retailers could identify trends, design and order the items quickly, and have them on their shelves in a matter of weeks, rather than months or even years.
The company remained privately-owned by its two founders, and at the company’s peak in 2015, Jin Sook and Do Won Chang had a combined net worth of $5.9 billion, according to Forbes.
But the company expanded too rapidly just as technology and changing consumer tastes began to hurt its business. Forever 21 announced on September 30 that it would file for bankruptcy protection and would move quickly to restructure the company’s operation in order to survive in a rapidly changing consumer retail environment. Forever 21 will close 350 stores globally but will continue to operate in select locations and online. The founders said that it would cease operations in 40 countries, including Canada and Japan, as part of its bankruptcy plan. It will shutter up to 178 stores in the U.S. and up to 350 over time.
Forever 21’s e-commerce revenue accounts for a relatively small 16 percent of its sales. The company saw its total revenue drop 25 percent in 2018, to $3.3 billion, down from $4.4 billion in 2016. It expects the restructured company to bring in $2.5 billion in annual sales.
Many factors conspired to hurt the fortunes of the once hot company, including:
- Changing consumer behavior: Young teen customers have always been the focus of Forever 21, and this customer segment’s shopping behaviors have changed rapidly. For today’s teens, shopping is not a form of entertainment as it was for previous generations. Smart phones are their entertainment of choice. Walking around a mall is not.
- Poor online presence and offering: The Forever 21 website was not a focus until recently and is still a very bad version of the in-store experience. The design of the site is confusing and dated when compared to competitors like H&M and Zara. Modern-day consumers know what a welcoming and robust website looks like and will shy away from one that is not up to modern standards.
- The product offering became too varied: As the chain expanded into larger stores, they had to fill them with products, and they added clothes for men, older women, plus sizes and accessories. This approach led to a confusing product offering, which then quickly turned off the loyal customer base that the business was built on.
While Forever 21 will continue to exist in a pared-down and updated version, it is still a cautionary tale of the ever-changing nature of marketing to consumers and prospering in a rapidly changing world. It can be done correctly, as companies like Nike, Starbucks, and Apple have all rapidly expanded their stable of products over the past decade, and still command loyalty from long-time customers. But it is fraught with risk and difficult to do.
