By Neil Saunders
The entry of Forever 21 into Chapter 11 bankruptcy is a consequence of both changing trends and tastes within the apparel market and of missteps by the company. The combination of these two things means that in its current form the chain is unsustainable.
Forever 21 was once a colossus on the fashion stage; it was a destination for young American shoppers looking for relatively cheap, on-trend clothing. However, over the past five years the number of customers has waned as the brand has fallen increasingly out of favor. Part of this is down to the rise of credible competitors like H&M but some is also the result of a lack of clarity and differentiation at Forever 21. Over the past few years, the brand has lost much of the excitement and oomph which is critical to driving footfall and sales and is now something of an also-ran which is too easily overlooked.
Store standards have also been sliding and consumer ratings for the quality of displays, merchandise, and the amount of inspiration in shops have dipped considerably over the past year. In an era when it has become very easy to buy online, Forever 21 has not taken care of its physical assets and the profitability of its estate has suffered. It is also the case that some of the locations where Forever 21 operates, especially in malls, have been in decline. Because Forever 21 operates very large stores, there is no doubt it is over-spaced, and its fleet configuration is suboptimal. Resolving this will be a key part of the actions taken under bankruptcy protection to make the business economic.
Prevailing consumer trends have also been against Forever 21 as some younger shoppers have migrated away from fast fashion in favor of more sustainable models of consumption. Although this is not the main reason for the decline—as is witnessed by the success of other chains in the segment such as Primark—it has been broadly unhelpful to growth and has added further pressure to a business desperate to drive its sales line.
In our view, the bankruptcy process will result in a much leaner US business that is more focused around key stores in core markets as well as driving online commerce. The international operation will be much more significantly disrupted with most, if not all, stores in Europe expected to close. In our opinion this is for the best as Forever 21 was a weak player in a very competitive and sophisticated European apparel market; and it never really fully understood customer demand in the region.
Ultimately, however, slimming down the operation and reducing costs is only one part of the battle. The long-term survival of Forever 21 relies on the chain creating a sustainable and differentiated brand. This is something that will be very difficult to accomplish in a crowded and competitive sector.
Neil Saunders is managing director of GlobalData Retail.