You are here: Home » Companies » News
Business Standard

Forever 21 debacle signals eroding power of malls, shift in consumer tastes

Forever 21, which said e-commerce made up 16 per cent of its sales, saw its revenue drop to $3.3 billion last year

Sapna Maheshwari | NYT 

Forever 21 store at Walden Galleria in Cheektowaga, New York. Photo: AP/PTI
Forever 21 store at Walden Galleria in Cheektowaga, New York. Photo: AP/PTI

Forever 21, the California retailer that helped popularize fast in the United States with its bustling stores and $5 tops, said on Sunday night that it would file for bankruptcy, a sign of the eroding power of shopping malls and the shifting tastes of young consumers.

The private, family-held company capped months of speculation about its restructuring efforts by saying that it would cease operations in 40 countries, including Canada and Japan, as part of a Chapter 11 filing. It will close up to 178 stores in the United States and up to 350 overall.

said that it would continue to operate its website and hundreds of stores in the United States, where it is a major tenant for mall owners, as well as stores in Mexico and Latin America.

“What we’re hoping to do with this process is just to simplify things so we can get back to doing what we do best,” Linda Chang, the chain’s executive vice president, said in an interview. Ms Chang’s parents, Do Won and Jin Sook Chang, who still run the chain, founded in the 1980s after immigrating to California from South Korea.

The bankruptcy is a blow to a company that prided itself on embodying the American dream, as well as a reminder of how quickly the retail landscape is transforming. experienced big success in the early 2000s with its troves of merchandise that imitated of-the-moment designer styles at rock-bottom prices. It joined Zara and H&M in making fast, disposable widely available to American shoppers, especially young women, who were exposed to new wares seemingly every time they entered a store. But the company expanded too aggressively just as technology was beginning to upend its business.

“We went from seven countries to 47 countries within a less-than-six-year time frame and with that came a lot of complexity,” Ms. Chang said. At the same time, she said, “the retail industry is obviously changing — there has been a softening of mall traffic and sales are shifting more

to online.”

Forever 21, which said e-commerce made up 16 per cent of its sales, saw its revenue drop to $3.3 billion last year, down from $4.4 billion in 2016. It expects the restructured company to bring in $2.5 billion in annual sales. The company employs about 32,800 people, down from 43,000 in 2016.

Mr Chang, the company’s chief executive, said in a 2012 interview that the chain was named Forever 21 because it targeted 20-somethings and because “old people wanted to be 21 again, and young people wanted to be 21 forever.” A large part of the company’s base is minorities, Ms Chang said, and customer studies have suggested that 40 per cent of Forever 21 shoppers are between the ages of 25 and 40. She said the company would still aim to keep merchandise below $50.

Forever 21’s bankruptcy puts a spotlight on the widening chasm between America’s lower-quality malls, which are losing customers and anchor tenants, and its top shopping centres, which continue to draw foot traffic.

In the years before and after the recession, Forever 21 opened stores at a rapid clip — they also served as the company’s main marketing vehicle — and bigger was often better. While teenage and 20-something women were the core customer base, Forever 21 believed that it could sell to the whole family. It moved into spaces vacated by bankrupt chains like Mervyn’s and Gottschalks and opened huge flagships in major cities, including a Times Square colossus in 2010 that was around 90,000 square feet and still spans four floors. (The company said it is in discussions with the landlord of that store about its future.)

The retailer, which did not pay rent on its stores in September in order to preserve capital, believes it can renegotiate many of the leases on its United States stores after the filing, said Jon Goulding, an executive at the consultancy Alvarez & Marsal who will be Forever 21’s chief restructuring officer during the proceedings.

Forever 21’s struggles have provoked questions around the appeal of fast more broadly. Younger shoppers have increasingly turned to consigned goods and brands that claim sustainability as a value, said Wendy Liebmann, chief executive of the consultancy WSL Strategic Retail.

©2019 The New York Times

First Published: Tue, October 01 2019. 23:33 IST