Introduction

The American dream is at the heart of Forever 21. Created by husband-and-wife duo Do Won and Jin Sook Chang, the couple emigrated from South Korea to Los Angeles in 1981 in hopes of a better future. By 1984, the Changs opened up the first Forever 21, then known as Fashion21 in California, making $700,000 USD in sales in its first year. By 1989, the first mall store was opened, and the company went international in 2001 by opening their first Canadian retail store. At its peak, Forever 21 was generating 4.4B in revenue with over 700 stores worldwide; the Changs had gone from working class immigrants, to becoming billionaires.1 They had achieved the American dream. However, all was brought to a halt with their recent bankruptcy filing. How did this American dream turn into a nightmare? What led Forever21 to file for bankruptcy in a market that is still heavily reliant on fast fashion brands? It is evident that Forever 21’s business strategy, marketing plan, and its focus on the “now” is the ultimate reason they might not have a “future”.

Forever 21's Journey

Market

Fast fashion is the rapid production of inexpensive clothing to reflect the latest trends. Many fast fashion brands have been accused of exploiting workers from third world countries to sustain this business model. Today's shoppers are increasingly moving away from fast fashion to sustainable clothing, a key contributor to Forever 21's 44-store shut-down and eventual bankruptcy. Although sustainability and the green consumer are rising trends, Forever 21's fast fashion competitors such as Fashion Nova, Wish, and Zaful do not face the same solvency issues of the former market leader. Therefore, even with changing consumer tastes, Forever 21 could have avoided its fate. If the problem isn’t with the market, could Forever 21’s strategy be at fault?

Business Strategy

It is difficult to identify exactly who Forever 21 is targeted towards, especially when looking at its product mix. Forever 21 carries clothing for women, men and children of all sizes, and have also ventured into sportswear, swimwear and undergarments.2 In addition, they carry a large assortment of additional product lines such as accessories, footwear, skincare and beauty supplies. The only thing Forever 21 lacked, however, was one particular target market. Forever 21’s strategy was to saturate as many consumer segments as possible with a multitude of products, facilitated by cheap production and distribution costs.

Furthermore, surrounding market positioning, Forever 21 focused its efforts on establishing a presence through physical stores in shopping centres and outlet malls. Three years prior to its bankruptcy filing, Forever 21 opened 600 of their 700 outlets, representing an annual growth rate of 91%.3 This strategy was unsustainably aggressive relative to H&M’s strategy of steady growth, which has allowed it to establish 5000 stores at an annual growth rate of 5%.4

Forever 21’s brand presence, emphasizing physical stores, however, may have diverted their attention from capturing the growing e-commerce market. For example, Forever 21 did not focus on marketing efforts through advertising campaigns such as TV advertising space or celebrity collaborations. Management assumed the physical presence of their outlets was sufficient marketing: another justification for their slow transition.5

Finally, Forever 21 operates using a centralized management. Being a private company with 99% equity owned by the Chang family, only a select number of individuals had the power to make impactful decisions. With only the Change family as central management, there was a lack of outside parties to object to their standard strategy: focus on the now and maximize profits in the short run. In an interview with CNN, Do Won Chang explained that being a private company has helped in making decisions extremely quickly.6 Similarly, without external insight, there were no outside consultations from industry experts who could have provided them with alternative ideas for longstanding success.

Photograph of Forever 21 store

What Went Wrong

Their Target Market is the Market

Forever 21 was initially targeted for consumers in their 20s, who as Do Won Chang later explained were for “Old people who wanted to be 21 again, and young people who wanted to be 21 forever”.7 This suggests that their target market was not defined by a particular demographic, but rather an experience. To accomplish this, Forever 21 focused on producing clothing according to current fashion trends. This allowed them to cater towards a large demographic as all ages looked to buy the latest trend. At the time, this worked quite successfully, allowing Forever 21 to capture a large audience with one style. But as trends went, so did their appeal. With no specific target market in mind, Forever 21’s resources were put towards replicating trends with a rapid pace, and subsequently, they lacked in-depth knowledge of a particular demographic. Their lack of a target market became apparent when retailers who knew more about specific demographics created products specifically to fit their niche. Coupled with industry headwinds, consumers left to look for more tailored customer experiences.

As a result, their expansive product mix led them to stray away from their original business model, trendy and affordable clothing, and instead spread themselves thin across many different demographics. Although this strategy of “demographic diversification” proved profitable until 2015, it did not prove for brand longevity, especially as consumer tastes changed.8 When they expanded their product lines to include makeup, home décor, men’s and children’s clothing, Forever 21 struggled to maintain the allure that made them successful.

Compounded by Forever 21’s relatively poor product quality, its inability to capture any single demographic segment further cemented Forever 21’s demise.

How are People Buying from F21?

Before filing for bankruptcy, there were 44 stores in Canada and 700 stores worldwide. Forever 21 aggressively pursued growth through in-store purchases and increasing their retail footprint. However, their store expansion led to poor margins and low profitability as increased rental expenses ate up 30% of revenues. As the industry turned to e-commerce, Forever 21 was left behind. E-commerce based businesses have higher margins and growth within the industry. While Forever 21 concentrated on generating sales in their physical stores, competitors made upwards of 30% of revenues through e-commerce, nearly double those of Forever 21(16%).9 Even with surveys demonstrating that millennials in the U.S. made more than half of their purchases online10, the focus was still on Forever 21’s physical footprint.

The Social Media Campaign… Or Lack Thereof?

Forever 21’s marketing budget reiterates its misunderstanding of current trends, as the US budget went from $800,000 in 2017 to under $344,375 by 2018. Similarly, in 2019, only $383,000 was been spent on marketing, with search engine optimization using the majority of the budget.11 Their marketing efforts paled in comparison to other brands such as H&M, their biggest competitor, which spent a little under $100 million on advertising.12 In a time where consumer engagement through marketing is crucial , Forever 21 seemed to move in the opposite direction.

As a result, Forever 21’s social media engagement was severely lacking. Their social media platform was scattered and had minimal potential for sales conversions. Firstly, their branding was segmented across a multitude of accounts, supposedly targeted towards different demographics. Just to name a few, Forever 21 had a Canadian account, a men’s account, and a plus size account.

When looking at H&M or FashionNova, they both utilize their large audiences by posting several posts a day that have links to their promotions on their online store. This additional level of interaction of the competitors has raised a competitive edge against Forever 21 as not only do they engage further with their audience, but they also focus their efforts to generate their online sales through social media platforms.

Comparision of F21's Statistics with other brands

The Cost of Copyright

Legality is also another aspect to consider when looking at the structure and success of Forever 21. Forever 21 has been sued over 50 times for allegedly stealing works from Diane von Furstenberg to Gwen Stefani and most recently, Ariana Grande.13 Of all these cases, only one case with the label Trovata was settled in courts.14 Forever 21 gets away with these lawsuits because of copyright law.15 Specifically, copying a design or a piece of clothing verbatim is not technically illegal because the law doesn’t prohibit creative expression and can thus allow Forever 21 to ‘copy’ designs.16 Under the Innovative Design Protection and Piracy Act, in the US, it lays out the rights of artists and designers to be protected from others copying their works of art, including the designs; however, this legislation does not include clothing as it is considered a “useful article”.17 For this reason, large enterprises, such as Forever 21, may be excused of copyright law as there is no legislation that is limiting them from copying the designs, especially if they are not patented by the designer.

While Forever 21 has been able to avoid consequences in the courtroom, they have suffered greatly in their trial against public opinion. In a recent advertising campaign, Forever 21 victimized Ariana Grande by copying her “7 Rings” music video outfit. Although the $10m financial loss wasn’t substantial, their brand image was negatively impacted.18 The backlash of Forever 21’s reputation by prominent public figures ultimately accelerated the other consequences of their marketing strategy. As there was an absence of response to these public claims and no attempt to salvage their reputation, the damage incurred by these copyright issues indirectly caused losses greater than the settlement themselves.

Comparision of F21's post with Ariana Grande's 7 Rings Music Video

Aftermath and Next Steps

Due to its poor financials and ineffective marketing position, Forever 21 filed for Chapter 11 bankruptcy protection which allowed the company to continue operating a few stores. Around 350 stores will be shut down globally including all 44 Canadian stores.19

Forever 21 is a prime example of how the American Dream can quickly turn into a nightmare. Their strategy to hastily expand their business without looking at how they were positioning themselves in the market ultimately led to their bankruptcy filing.

In the meantime, Forever 21 has focused its efforts on the American market, with an emphasis on restructuring and reevaluating their strategy. Due to the nature of Forever 21’s business model, it is difficult to determine mine what the next steps will be. In the meantime however, only assumptions can be made regarding Forever 21’s future.

Bibliography