En bancarrota: una breve historia del creador de Forever 21

It was the embodiment of the American dream. A migrant couple who starts from scratch and rises to the top of the clothing retail industry. But then, that dream plummets to the ground. 

Forever 21 became a fixture in fashion and the wallets of twenty-something-year-olds. The clothes were fashionable and cheap, and there was a Forever 21 store in almost every shopping mall you could think of. 

They were ALL OVER the world. And, with the latest fashion trends on hand, they seemed here to stay. 

But Forever 21 was a controversial brand. It grew too fast and had dubious practices. 

So, it’s safe to say that it rocked the world of fashion, for better or for worse. And, in 2019, it was the ever changing world of retail that ROCKED Forever 21, so much so that the company filed for bankruptcy protection. 

How did one of the world’s most noticeable fashion brands manage to get to this point? In this episode of Startup Forensics, we’ll dive into: 

• How Forever 21 began
• The wrong growth and expansion
• Controversies 
• The demise
• A look into the future
  

How Forever 21 began

Korean immigrants Do Won Chang and Jin Sook Chang arrived at the U.S. in the 80’s and they had a rough time. They worked odd jobs, had very little money and no formal education to rely on. 

Do Won originally had hoped that, having worked at a coffee shop in Korea, his expertise in this area would be the gateway to success but it wasn’t. 

He was stuck as a waiter. But he did notice something. 

The people who drove the nicest cars were all in the garment business, he said in an interview. His instinct told him the way to success was through fashion. 

So, in 1984, they scraped up all the money they had, $11 000 in total, and opened a small clothing store called Fashion 21. The 900 sq. ft. store was directed towards the Korean American community, its women specifically. 

And it worked; the first year raked in $700 000 in revenue.

With such results, they felt confident enough to expand, at a brutally fast pace: a new store every six months. DON’T forget this.  

By 1987, the Changs wanted to give Fashion 21 a twist. Their aim was to evoke an eternal desire for youth, a wish to remain in what Do Won himself recalled as the most enviable age: FOREVER 21. 

With a new, catchy name, and a profound understanding of their key demographics, Forever 21 did something that seemed a bit odd. Instead of importing garments at a lower operating cost, they chose to produce their clothes domestically. 

Why? 

Because this way, they had the latest fashion on hand quickly, faster than any competitor. They would base themselves off ideas seen in Korea and produce them practically on site.

Many of their items were very cheap, meant to be bought, worn, and sometimes, discarded quickly. This is called fast fashion, and we’ll talk about it later. 

For now, let’s just say they were well on their way to becoming an empire. 

The wrong growth and expansion

By 1989, Forever 21 had 11 stores all over California. They averaged 5000 sq. ft. in size and the chain had even opened their first mall-based store. 

Six years later, by 1995, they expanded to Miami and by 1999, Forever 21 had <100> stores all over the U.S., some with 9000 sq. ft. or more of space. 

To diversify and capture even more buyers, they introduced Forever XXI in 2001; a new, high-fashion concept. Flagship stores opened in major cities like L.A., Miami, and Chicago and they were massive, averaging 24 000 sq. ft. in size. ALSO remember this. 

All this was fueled by Mrs. Chang’s eye for business. 

Mrs. Chang, and her nearly-clairvoyant ability to predict trends, were part of the catalyst that boosted Forever 21’s upswing, said an article in Business Insider. 

And, as I mentioned before, their key strategy was fast fashion. Given that the garments’ intended use wasn’t for the long run, most of Forever 21’s clothing was cheaper and didn’t have the highest quality. 

Now, take into consideration that fast fashion CAN AND HAS BEEN profitable for brands, but hedging all your bets on it can backfire. Fast fashion requires you to have cheap products that attract the customers to the company’s other, more expensive products. 

So, the loss-making, cheap clothes work as a gateway, as a hook. 

To be successful with fast fashion, you need to control variables like growth, supplies, and production cost. 

<With regards to this last item: how do you make cheap clothes? Ahem, sweatshops. But we’ll talk about this later.>

The Changs knew they had to cater to bigger audiences. So, in 2006, they included the men’s line, a lingerie line in 2007, and a plus size brand in 2009, as well as makeup and cosmetics. 

In 2010, they opened a <90 000 sq. ft> store in Times Square, with a visitor frequency of 100 000 people per day. 

So, it came as no surprise that, by 2015, Forever 21 brought in $4.4 bn in sales and Do Won and Jin Sook had a net worth of $5.9 bn. 

By 2018, there were 800 stores all over the world, and the chain hired a total of almost 43 000 people. 

All of this, while they kept the core business in the family, as their two daughters, Linda and Esther, stepped into the company and helped expand it. 

Yes, the company was expanding, at a very high rate. 

But Forever 21 didn’t pay attention to one very particular detail: ONLINE BUSINESS. 

Their ecommerce was merely 16% of their total sales and this made them VERY vulnerable to online shopping, which was evidently the future. 

<Amazon, anyone?> 

Then, there was the company image. 

Controversies 

Production costs in the clothing industry have always been controversial. The cheap end price is only the tip of the iceberg. 

In 2001, amidst their early expansion, employees from a Los Angeles factory sued Forever 21, alleging conditions that more closely resembled a sweatshop than a factory. Amidst the allegations were altered timecards, long work hours, payment below the minimum wage and, in some cases, no pay at all. 

This case generated a three-year boycott against Forever 21 and, though it was eventually settled in 2004, the chain’s image took a hit. 

Then in 2014, the United States Department of Labor’s Occupational Safety and Health Administration (OSHA) recommended Forever 21 be fined with $100 000 for serious safety hazards in its stores. 

Yes, it was pocket change for them, but the buck didn’t stop there because it wasn’t only about employee conditions. 

Designers claimed Forever 21 copied their work, including heavyweights like Diane von Fürstenberg, Anna Sui, Gwen Stefani and Trovata. Even Ariana Grande sued them for copying the style found in her 7 rings video. 

Companies like Autodesk and Adobe filed a joint lawsuit against the company for using illegal, pirated copies of their software. C’mon! You turn in billions. You can at least pay for ONE license. 

Remember all those stores? 

Well, in some malls, they had also inflated sales figures to lure in renters. (They’re facing a lawsuit for this. ANOTHER one, yes). 

Also, some of its jewelry products had toxic cadmium in them. Wait, is this for real? All of this? WOW. 

And to top it all off, the company has been accused of pushing a religious agenda. 

That’s right. Religion gets into the mix. 

You see, the Changs are born-again Christians and have consistently placed religious phrases in their products, such as Holy and Thank God, Jesus Loves You, etc. Even the verse John 3:16 is printed in their clothing. 

Is that Stone Cold Steve Austin? No, that’s another thing. 

Whatever their beliefs, it’s evident that the company didn’t have a clean slate. In fact, it’s a very messy one. But, did all this help in the company’s demise? 

The demise

Controversies might’ve not sunk the brand, but they did help in denting an operation that was already getting out of hand. Forever 21 had expanded too quickly and Mrs. Chang admits to it. 

“We went from seven countries to 47 countries within a less-than-six-year time frame”. 

7 to 47, in less than six years. WOW:  

And, remember what we said about the complexity of fast fashion? Well, again, here’s what she had to say. 

“When we grew so quickly, there was a lot of complexity that we did not foresee. We weren't set up with the supply chains to support that kind of globalization. Having to tailor our assortment for different countries created a lot of nuances that added up to a big puzzle problem for us.”

Talk about being honest. 

Entonces, en resumen, ¿Forever 21 tuvo demasiado éxito? (Mirada curiosa).

Bueno, SÍ.

Se expandieron demasiado rápido y no tenían una buena comprensión de todo el proceso. Esa nunca es una buena combinación. Además de esto, el comportamiento de los consumidores estaba cambiando. La gente ya no va a los centros comerciales.

Veamos algunos números:

En 2018, las ventas de la empresa alcanzaron un promedio de 3.300 millones de dólares. Un buen número, ¿verdad?

No tanto si lo comparas con 2016, cuando vendieron 4.400 millones de dólares. Una pérdida de mil millones de dólares en solo dos años.

Y la cadena tenía muchas tiendas grandes, brillantes, pero caras de operar. Sí, tenían alrededor de 800. La deuda se estaba acumulando.

Así que, aunque intentaron evitar la quiebra reduciendo su personal, era inevitable.

En 2019, la empresa solicitó protección por quiebra. Esto ocurre cuando una persona o empresa tiene demasiadas deudas y no puede pagarlas, por lo que solicita reorganizar toda la operación de endeudamiento.

Esto básicamente significa otra oportunidad para, con suerte, volver a ser rentable.

Y, aunque al principio sorprendió al mundo, algunos no se sorprendieron.

Por cierto, los centros comerciales deben ser cautelosos.

Esto es lo que dijo Mark Cohen, profesor de negocios:

»Es una catástrofe autoinfligida. Esto es una bonanza para la competencia y es otro golpe de muerte para los centros comerciales en los que se encuentran, que ya han perdido un Sears, Macy's o Penney's y luchan por que los pasos disminuyen cada día».

Pero una empresa tan grande no iba a desaparecer sin más.

Una mirada al futuro

La empresa tuvo una oportunidad cuando solicitaron protección. Y han tomado medidas; en sus esfuerzos por rescatar a la empresa, los Chang cerraron muchas de las tiendas. MUCHO.

350 de ellos.

También dejaron de operar en <40>los países para centrarse en sus ubicaciones más rentables e inyectaron algo de esfuerzo en sus operaciones de comercio electrónico.

¿Recuerdas que su comercio electrónico quedó en el olvido? Bueno, se dieron cuenta y trabajaron en ello.

¿Será suficiente? No lo sabemos.

Sin embargo, ha crecido del 16% en 2016 al 25% en 2019. Tenga en cuenta que sus ventas y toda su operación son mucho menores ahora.

También han aumentado su marketing y han creado alianzas con Amazon y otros minoristas en línea, pero de alguna manera parece que falta algo. No son demasiado específicos sobre lo que van a hacer. Quizás ni siquiera ellos lo sepan.

Pero una cosa es segura. Lo que los hizo grandes se ha extinguido. Se acabaron los días de las tiendas masivas: ya no hay necesidad de ellas.

Así que puede que esta no sea solo la historia de Forever 21, sino también la de todos los grandes almacenes. ¿Hacia dónde nos dirigimos? ¿Qué pasará con todos estos espacios?

¿El futuro tendrá tiendas de ropa?

No lo sabemos Quizás como museos o como un destino exótico al que viajar.

Pero, por ahora, todo lo que sabemos es que Forever 21 puede mantenerse con vida, solo si se aleja del pasado.