The Decline of Forever 21...What Happened?

[Music] forever 21 is a major clothing retailer that has been successful by doing things a little differently than you typically see and as a result has played a part in disrupting the industry by the early 2010s it had grown to about 2 billion in annual sales that doubled to more than 4 billion by the middle of the decade making them one of the largest specialty retailers in the united states with plans of expanding even further but then just before the end of that decade in september of 2019 they filed for bankruptcy they were able to continue operating with some changes in ownership but at a very much reduced capacity their 800 stores have since been cut down to about 540 that is quite a turn of event it's a conflicting story because personally i can find a lot to like about it a lot of inspiring parts but also just some aggravating parts as well for this video i want to talk about all of it the unique ways that forever 21 grew into a recognizable brand across many parts of the world while identifying 5 of the main reasons behind their struggles it's all going to be simultaneous because you'll start to realize that the reasons behind their success are not entirely different from the reasons behind their failure the entire concept behind forever 21 is based around fast fashion characterized by trendy clothes at reasonable prices if you're looking to get something that resembles the newest fashion you can likely find it at forever 21 before most other traditional retailers and at a lower price than most other retailers they keep everything so up to date and turn over their inventory so quickly that there's always new stuff to find when you go there motivating customers to continue coming back and making it a fun experience plus if you're on the fence about buying something you'll be more likely to pull the trigger because it might not be there later it's fast paced new discovery now we're never type shopping again at low prices which almost sounds perfect right well there are obvious trade-offs and some of those trade-offs have led to my first reason behind their struggles their absurd number of controversies and lawsuits in fast fashion the clothing tends to be cheaply made which makes sense it's intended to be worn for only a few times i guess until that particular trend is out of date updating your wardrobe every few weeks or months like this does keep you looking good but it's also pretty wasteful forever 21 and the rest of the fast fashion retailers have been criticized on the wastefulness that it promotes and the impact that it has on the environment another controversial way that they're able to keep those prices so low is by lowering their labor costs which has led to multiple lawsuits involving wages and working conditions maybe the most notable one of these being back in 2001 when 19 workers that were contracted to make loads for forever 21 sued them for being paid less than minimum wages and for what they describe as sweatshop conditions it got messy when it led to this three-year boycott against them and then forever 21 sued them back for libel it all was settled in 2004 but definitely generated some bad press they have also been perpetually involved in copyright lawsuits generally because they make something that resembles someone else's logo or designer likeness without their permission basically making knockoffs unlicensed versions of more popular or expensive items notable companies that have sued them for this include abercrombie and fitch gucci adidas you just can't put those three stripes on something without permission because it leads people to believe that that item was made by adidas they have also been sued by gwen stefani's company rihanna's company and even ariana grande sued them for 10 million dollars after they hired an obvious look-alike model to promote stuff on their instagram all of it is seemingly trying to add artificial brand value to their clothing or at the very least imitate a design that was proven to be popular somewhere else so even though the clothing at forever 21 is cheap and trendy their ways of making that happen have been questionable they've led to bad publicity loss of sales and what i can only assume are hefty lawsuit settlements alright my next reason behind the struggle of forever 21 is that their owners have insisted on maintaining absurdly tight control over the company which i realize in many cases can be seen as a positive but i wouldn't say that here the owners that i'm referring to here are du won chang and his wife jin suk chain i mean this is truly one of those american dream land of opportunity stories i couldn't make one up that better fits that criteria in 1981 they immigrated from south korea to the united states they had nothing beyond a high school education so they were forced to start out working lower paying jobs at one point do one was working at a coffee shop during the day it would leave there to a second job as a gas station attendant during the evening and then would continue on to his night job as a janitor but it was a sacrifice working so many hours for three years allowed them to save up about eleven thousand dollars that they used to open a small clothing store in los angeles originally called fashion 21 but the name was quickly changed to forever 21. he says that he chose to open a clothing store because as a gas station attendant he noticed that a lot of the higher end cars coming through were driven by people in that industry and he says that he chose to put 21 in the name because he saw it as the most enviable age i think that was a good decision because they have a lot of teenagers who shop there that i imagine would look up to somebody who is 21 years old and then maybe the older people want to be seen as younger so it's kind of the sweet spot that first store was initially geared toward the korean community in los angeles but they quickly widened their customer base and had sales of seven hundred thousand dollars in that first year from there they continued opening more of them that were successful enough to allow them to continue opening even more of them ironically there were a few cases where a competitor of theirs would file for bankruptcy and they would be right on top of it as an opportunity to expand their reach maybe the most notable example of this would be in 2005 when they bought 150 stores from gadzooks for 33 million dollars forever 21 only had 200 existing locations going into that so it was a big opportunity as i said they eventually reached 800 locations and that may have been a little bit too much for them to handle what i mean is there aren't many companies of this size that are so tightly controlled by a family like this doo won chang was the ceo from the very beginning and he remained that way for over 30 years until entering the bankruptcy his wife has remained heavily involved they had two daughters esther and linda that have held vice presidency positions to be clear i'm not saying it's a bad decision to have a family operated company but it's okay to get a little bit of help sometimes some outside perspective maybe someone has a little more experience in something you see what i'm saying but the chang family was known for involving themselves in the smallest details which is fine when it's one or two clothing stores but when it's 800 it can get impractical i'm sure that there was a sense of pride and confidence having gotten as far as they did but you have to be smart about it like with the ownership for a company like this that's doing so well and looking to grow even further you would almost expect a public stock offering or at least some kind of outside investors to help raise money help operate the business even allow you to cash out a little bit but they refused to do it maintaining 99 ownership leading into the bankruptcy i think of the chang family as one of those guys at the blackjack table that just doesn't know when to quit he's way up in chips and for whatever reason just keeps making big bets and ends up losing most of it in 2015 these two had a combined net worth of 5.9 billion dollars that would have been the time to cash out because it has since been reduced to 1.6 billion obviously i wouldn't worry about them too much at 1.6 billion dollars but that is a significant reduction and probably the most impactful thing to happen to them is that they no longer own the company that they started built and held on to so tightly in 2020 it was acquired for 81 million dollars by two real estate companies and the owner of some other retailers speaking of real estate that is my third reason behind their struggles because forever 21 has made some questionable deals in real estate now it could definitely be argued that they were opening too many of them but maybe the biggest issue is that they were just too big that first location back in 1984 was a very modest 900 square feet and they just kept getting bigger some of the next doors they opened were a few thousand square feet and by 2019 their average store was 38 000 square feet and that was the average the one in times square has four floors totaling more than 90 000 square feet there's one in las vegas that's 126 000 square feet and i think there's even one or two bigger than that when sears or boarders would close stores they would occupy some of those locations which are big locations i don't think that they needed to be that big considering that they've had trouble filling them with inventory plus a bigger location like that is a bigger risk and because they were so hesitant to ever close down a store they were essentially doubling down on that risk by keeping it open i thought this was interesting in 2011 their former head of real estate said having really big stores has always been mr chang's dream just thinking back to my previous reason that makes me suspect that the giant store size may have been more personally motivated rather than strategic because i have to think that most professionals may have advised against that for my next reason i'm going to compound that issue by mentioning their reliance on malls we all know that malls have not been doing well i don't want to go into the reasons for that but it has been especially harmful for forever 21. in 1989 forever 21 opened their 11th store that was a lot of numbers that happened to be their first store in a shopping mall and in the following years that shifted to be their primary focus since they were often in such a rush to expand and open new stores they would commonly agree to unfavorable lease terms just to get the ball rolling faster i'm talking about locking in longer than average leases that were simply overpriced so when the malls really started declining those long-term agreements didn't allow for much flexibility and they were stuck they had a total occupancy cost of 450 million dollars a year making it hard for them to turn a profit and pushing them even deeper into debts my final reason behind their trouble is their attempted international expansion a lot of the same issues that they've had with their domestic stores but amplify to an even higher degree this is a company that operated for over a decade before even opening a single store outside of california but by 2004 they started opening them overseas and again they were just doing it way too fast in a wild six-year span they went from seven countries to 47 countries and i'm sure you realize that opening successful stores in all of these different countries takes even more time in research than it would if they were just all in the united states for each area you have to become familiar with the laws the culture the trends and whatever else and forever 21 was simply not doing it in the way that they needed to that's likely a big reason that their foreign locations were generally performing the worst and accordingly accounted for the majority of closings following that bankruptcy plus to add another layer some of their biggest competitors in fast fashion like zara and h m are from europe so they were walking in on a competitive landscape that was very familiar with the area let me know in the comments what do you think of the story of forever 21 obviously some foolish decisions paired with some legal and ethical issues but there are some inspirational parts as well like i said it's conflicting so let me know what you make of it also what do you think of the store itself if you've been to forever 21 how do you think they compare to the other retailers as far as price and selection and quality is it just a bunch of junk that's best to avoid or is it a fun place to get affordable items and as always i should point out that this is not a complete list it would be impossible to talk about the entirety of the issue within these five bullet points but these are the ones that i felt were the most impactful or that best tell their story let me know if you think anything should be added or subtracted from it and any other thoughts you have about forever 21 leave them in the comments i'd like to hear what you have to say thank you for watching [Music]

Channel: Company Man

Views: 365,148

Keywords: Forever 21, Clothing, Fashion, Fast Fashion, Malls, Business, Failure

Id: wrKIrPWTag0

Length: 11min 37sec (697 seconds)

Published: Wed Jun 01 2022