How Forever 21 Lost Its Way and Ended Up Filing for Bankruptcy

September 30, 2019, 6:34 PM UTC

Ah, the fickleness of youth. And the challenges of overexpansion.

Forever 21 filed for bankruptcy protection on Sunday, becoming the latest fashion retailer to discover how brutal it is when your core teen customers consign your brand to the throwaway pile.

The clothing chain, once a favorite of teenagers and young adults (as well as slightly-to-much older people who refused to let 21 go), will exit many markets and close up to 178 of its 549 U.S. stores, the better to focus on salvaging what remains of a once formidable retail empire. Forever 21 built those stores selling inexpensive but trend-driven styles that the company put on sale before department stores or specialty clothing stores even had time to react to the new and next.

The former it brand’s revenue plummeted 25% between 2016 and 2018‘s final tally of $3.3 billion. Even as shoppers started drifting away from the chain, Forever 21 remained saddled with a sprawling fleet of massive stores and a scattered focus that included markets like Europe, which Forever 21’s executives never really deciphered. The company expects to take in $2.5 billion annually as a smaller retailer.

Linda Chang, Forever 21’s executive chairman and the daughter of its two founders, Do Won and Jin Sook Chang, told the New York Times that Forever 21 went from seven to 47 countries within a six-year span. At the start of the 1990s, that expansion fit what looked to be the company’s upward trajectory.

Forever 21 became the first real U.S. contender in the fast fashion world, joining Inditex’s Zara and Hennes & Mauritz in quickly offering more affordable versions of designer items. Forever 21 was one of the main brands to inflict pain on the flagship brands of apparel behemoths like Gap Inc. and Abercrombie & Fitch.

But in retail things can change quickly, particularly when serving younger shoppers. (Aéropostale and American Apparel are among the clothing chains to have preceded Forever 21 in Chapter 11 filings in recent years.) Forever 21 found itself overexposed in U.S. malls, the weakest of which have seen shopper visits plunge. And the complexity of handling fast expansion both domestically and abroad dulled the retailer’s ability to offer the fashions shoppers wanted.

Some have surmised that as a fast fashion player, Forever 21 is out of step with younger shoppers’ growing focus on sustainability and aversion to throw-away clothes, and point to the growth of online consignment and re-commerce businesses, which remain a small slice of apparel sales. There is some truth to that but it’s worth noting that as Forever 21 shrank between 2016 and 2018, H&M and Zara grew, though those chains admittedly cater to a broader clientele.

It’s more likely that Forever 21, like other apparel chains, suffered from fashion misfires, and the growing competition of everyone from Primark to T.J. Maxx to Gap Inc.’s Old Navy to a resurgent Target, exacerbated by the distraction of managing such a complex organization.

In a research note, Neil Saunders, the managing director of GlobalData Retail points to 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.”

And now, as a much smaller chain in fewer companies, Forever 21 will be able to focus on the U.S. in key markets where it is doing well. Chang herself told the New York Times that the goal of the bankruptcy filing is to simplify Forever 21 and “get back to doing what we do best.”

Apparel retail is more competitive than ever. Look to department stores or specialty chains like The Gap or Abercrombie for proof. A smaller, more focused Forever 21 has a much better chance of reinventing itself than a sprawling retailer that’s drowning in markets it doesn’t know how to serve.

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