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A bankruptcy may be in Forever 21’s future, but the chain will survive, experts say

James Taylor, retail expert at PA Consulting, discusses US retailer Forever 21 with National Real Estate Investor.

Click here to read the full National Real Estate Investor article. 

The article notes that Forever 21 is reportedly eyeing significant turnaround plans. Faced with diminishing mall traffic and falling sales due to competition from other affordable apparel retailers and trendy online fashion brands, the fast-fashion retailer is exploring a restructuring. However, that strategy poses some questions from industry experts.

Los Angeles-based Forever 21, which operates about 715 stores globally, made a name for itself as a store for younger customers seeking trendy clothes at reasonable prices. The family-owned chain opened its first store in Los Angeles in 1984. For a while, Forever 21 was hailed as a leading U.S.-born fast-fashion retailer, overtaking the mall-focused brands of the 90s to deliver popular collections in large-format stores typical of the European fast-fashion establishment.

Fast-fashion giants like Forever 21 and Swedish retailer H&M disrupted the specialty apparel sector by mimicking runway fashions at cheaper prices, and generally, beating other retailers to the market.

James says: “Forever 21’s rise of relevance through speed against a slower fashion sector in the U.S. fueled its global expansion to take on the Primarks and H&Ms during what could be viewed as the growing up of fast fashion during the 2000s.”  

Fast fashion has become a competitive business. Forever 21 faces rivals like H&M and Spanish clothing retailer Zara, as well as online retail brands like Fashion Nova—which has more than 15 million Instagram followers—and Lulus with 1.3 million Instagram followers. Social media and the use of celebrity endorsements are now marketing clothing.

James adds: “Even faster, fast-fashion players that are online-centric—ASOS, Missguided, Shein, Oh Polly, Nasty Gal—are cutting down supply chains to bring out offerings in as little as a week.”

Also, there are online rental and resale brands adding more competition. “Rental and resale options are growing and providing new ways to shop. Rent the Runway, Stitch Fix, Wear the Walk are currently taking consumers away from physical stores, but may have their own stores in the future.”

James adds: “While store expansions signal growth, it appears that Forever 21 hasn’t kept on top of the trends driving the larger retail industry, by tending to focus more on offline than online, and not generating perceptions of overall quality and sustainability."

He continues: “Consumers are looking for longevity from garments—with a focus on sustainability. Retailers are responding with new ranges and initiatives, such as in-store recycling schemes.” While Forever 21 employs various sustainable initiatives, it doesn’t market them in the same way as H&M, for example.

Will a restructuring work?

James adds: “A preferential debt restructuring could certainly help to achieve a more balanced capital cost structure against Forever 21’s low-cost production and pricing business model. Especially as it looks to invest in its expansion plans by taking on increasing debt.”

He continues: “In general, fast fashion will likely remain a key and dominant part of the industry’s dynamics, as consumers continue to seek inspiration for new and up-to-date styles from an ever-increasing set of social and digital touch points.”

However, the sector is changing and there’s instability. “Given the flux state we see the fast-fashion sector to be in, the restructuring could help to align Forever 21’s strategy with the sector’s evolution and potentially explore the growth areas found within online.”

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