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Forever 21, over the hill, but not quite out yet

As the world watched and remembered their youth, Forever 21 announced this week that it would declare bankruptcy and close nearly 200 of its more than 900 stores. While millions of millennials found their teenage and young adult identities at Forever 21, over the last few years its fortunes turned as it faced the same challenges that many mall retailers are facing in 2019; too much rent and too few footfalls. And while this appears to be just another “retail apocalypse” story, in reality there is much more to it. Few brands going into protection have the name recognition that Forever 21 still has, and even fewer can say that they defined a category.

“Fast Fashion”, which is defined by the Oxford Dictionary of the English Language as “inexpensive clothing produced rapidly by mass-market retailers in response to the latest trends” took the world by storm in the late 1990s and first part of the 21st century and spawned large retailers such as Forever 21, H&M, Zara, C&A, Peacocks, Primark, Xcel Brands, and Topshop. However, as times have changed the interest in quick, nearly disposable clothing at rock bottom prices has been replaced with interest in sustainable clothes which are produced in socially and environmentally responsible ways. Clothes to last replaced what’s now and fast, and unfortunately for Forever 21, it was too slow to pivot to the new expectations of the channel.

As someone with five daughters, the author has been inside more Forever 21 stores than he cares to discuss. Most are located in shopping malls in the US, but there are locations in more than a dozen countries around the globe. Many are giant footprints of more than 40,000 square feet which required a sense of dedication to the hunter/gatherer mindset to find the latest and best deals. This business model worked well until eCommerce came of age in the previous decade, and as the ability to search for and find new and exciting styles moved online, the footfalls in Forever 21 and other mall stores went with it.

The issue is not just the shifting expectations of the consumer, but also the very consumer themselves. The armies of young women and men who filled checkout lines of Forever 21 around the globe in 2005 are now older, hopefully wiser, and have different priorities than the latest styles for the lowest prices. Millennials are now interested in paying student loans, lowering mortgage payments, and raising families; and the new cohort of consumers in their late-teens and early-20s, Generation Z, is interested in the exact opposite of Fast Fashion. This has allowed new interlopers like Rent the Runway and thredUP to rise to prominence over the once dominant young-adult brand.

Sustainable fashion, via use-and-return models, or outright second-hand clothing, has taken the fashion industry by storm. Where Forever 21 shoppers were left to their own in the cavernous mall stores, companies like Rent the Runway and Stitch Fix offer styles that are often personalized to the user using a combination of personal shoppers and AI to customers. This, in addition to these modern brands’ finding ways to be as efficient as possible, was too much for a giant mall store to compete with.

However, there are a few bright spots in this story for Forever 21. Their brand, while struggling currently, is still very valuable.  In Piper Jaffray's 37th "Semi-Annual Taking Stock with Teens" survey of 8,000 teens it listed Forever 21 as the fourth most valuable brand after Nike, American Eagle and Adidas. The survey also reported that 90% of respondents cited a political cause they were passionate about, climate change being top of mind. This represents an opportunity for Forever 21 with younger customers to reach them where they want to be and offer them what they want; sustainable and responsibly sourced clothes at low prices.

Forever 21 grew too big, too fast, and now they're going to have to get a lot smaller to survive. By closing the majority of their international locations, streamlining their operations in the US and renegotiating leases with their landlords they can reduce their costs and possibly get back to profitability again. And being Simon Property Group’s seventh largest customer, there are many parties who will benefit from their recovery.

The question is whether or not they will change their ways and embrace the world today or stick with their path to success in the past. One will be a good deal, one will not. Time will tell which sale is the better deal.

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