Forever 21 reportedly in financial trouble

Hailey Mensik and James F. Peltz
Los Angeles Times

Nearly a decade ago, before Instagram influencers existed, Forever 21 helped teen girls dress like their favorite celebrities, for cheap.

It wasn’t a novel idea — teenage girls have always wanted to dress like their idols. The dizzying speed at which Forever 21 could make those trends available and affordable, however, was.

The chain reportedly needs to shore up its finances as young consumers keep migrating to other retailers, especially online.

The company’s specialty became known as fast fashion, and the chain grew aggressively to become a staple in American shopping malls, opening hundreds of stores and redefining what it meant to be a traditional mall anchor.

But some analysts, such as Marshal Cohen of NPD Group, warned at the time that because Forever 21’s “coolness factor” might eventually fade, the company had “to be careful that they don’t get too big.”

It apparently did get too big.

Forever 21 reportedly is now in financial trouble and developing restructuring plans in hopes of avoiding a possible sale or bankruptcy. With about 800 stores worldwide and more than $3 billion in estimated annual sales, Forever 21 — a privately held family business that started with a single store in Los Angeles in 1984 — is being squeezed on multiple fronts.

The chain reportedly needs to shore up its finances just as its coolness factor is indeed ebbing and young consumers keep migrating to other retailers, especially online sellers. Forever 21’s own missteps haven’t helped, including its move to sell clothes and other merchandise for a wide variety of shoppers — a broadening of focus that diminished its reputation with young buyers, analysts said.

“They’ve lost sight of what brought them there,” said Roger Beahm, executive director of the Center for Retail Innovation at Wake Forest University. “They’ve tried to make up for it by expanding the appeal, and I think you end up diluting what you stand for.”

The resulting irony is that Forever 21, which once benefited from dying traditional retailers by taking over their shuttered stores, is now threatening to become the next major trouble spot for already ailing mall operators.

Forever 21 isn’t alone. H&M, a fast-fashion giant based in Stockholm, also is struggling. Profits at H&M have fallen, and the firm’s stock price has plunged by half in the last four years as teens and others spend more online at sites such as Fashion Nova, Asos, Missguided and Lulus, as well as e-commerce kingpin Amazon and clothing resellers such as Poshmark and Depop.

One such consumer is college student Dawn Trevino, 19, who said during a recent visit to the Third Street Promenade in Santa Monica that she now rarely shops at Forever 21 because its styles feel “cookie-cutter.”

Even the basic staples at Forever 21 let her down, she said. She’ll often find a hoodie or shirt she likes, but when flipped over they reveal phrases such as “I love tacos” or “I hate people,” and she puts them back.

Forever 21 — owned by husband-and-wife team Do Won Chang and Jin Sook Chang, who emigrated from South Korea before starting the firm — has hired restructuring advisers to explore the chain’s options, including renegotiating leases and store exits with landlords, securing a new loan or overhauling the company’s operations, Bloomberg and the Wall Street Journal reported recently.

Forever 21 declined to comment for this article, and as a private entity its financial information, including how much debt it’s carrying, is not publicly available.

The company reportedly has been downsizing some of its enormous stores, in some cases ceding parts of the outlets to other retailers. According to its website, the average Forever 21 store measures 38,000 square feet.

Forever 21 became a trailblazer in fast fashion by selling a rapidly changing assortment of young women’s dresses, tops, jeans and other apparel and accessories, typically for less than $20 apiece.

Initially Fashion 21, the name was changed because “our target customers are people in their 20s,” Do Won Chang told CNN through a translator in 2012. “Old people wanted to be 21 again, and young people wanted to be 21 forever.”

Forever 21 had roughly 450 locations by 2009, and its “cheap chic” assortment was especially popular in the aftermath of the severe recession in 2008-09. Hundreds of shoppers would line up for the grand openings of its new stores.

As it grew, Forever 21 expanded into menswear, children’s clothing, maternity and plus-size apparel and cosmetics, among other items. But that made the chain too much like the failed, conventional department stores it replaced, said Ilse Metchek, president of the California Fashion Association trade group.

Metchek said teens who buy fast fashion often have a specific item or trend in mind, and when they go shopping, they “want to get in, they want to see it, they want to buy it and get ... out of there,” she said. “They don’t want to go upstairs. It’s too much of a department store.”

As shopping shifts online, the decline in traditional mall traffic exacerbates Forever 21’s problems, said Ronald Friedman, co-head of the retail practice at Marcum, an accounting and advisory firm.

Forever 21 invested heavily in conventional malls, but “they’re just not all going to be good stores,” Friedman said. “If you have stores losing a lot of money, the good stores can’t make up for all the bad stores.”

The chain still has a vast audience; it has more than 16 million followers on Instagram. But while Forever 21 once helped set trends for millennials, many in the subsequent Generation Z population apparently are looking elsewhere for clothing inspiration, Beahm said.

“A brand popular with millennials may not be popular with Gen Z,” and it should evolve to stay ahead of the trends, Beahm said. “If you’re following and chasing them, you can find yourself in trouble.”