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Why is Forever 21 closing its stores?

By on September 22, 2019

American fast fashion company Forever 21 is considering applying for bankruptcy. Media reports the company has been looking for additional financing to reduce its debt, but negotiations seem unfavorable. Rumor has it the once successful fashion brand will be closing down some of its non-performing retail stores for good after applying for bankruptcy.

Forever 21 was started in 1984 by a South Korean couple: an ex hairdresser Jin Sook and ex janitor Don Won Chang. With $11,000 savings and no college degrees, the Changs opened their first 90-square meter store in the Highland Park district of Los Angeles. They bought trendy clothing items from manufacturers at a discount so they could sell it at rock bottom prices. It worked. The company made $700,000 in sales on its first year and opened new stores every 6 months. As a result, it was able to expand its customer base and now has 800 stores all over Europe and Asia. By 2015, it had about $4.4 billion in global sales.

Forever 21 Japan’s Harajuku store opened in April 2009 followed by Ginza a year later. However, its aggressive expansion plans did not last long. In March 2013, the Ginza 6-chome store was forced to close down followed by its flagship Harajuku store in October 2017. Recently, two of its Aichi stores also closed down.

Interestingly, Sweden’s H&M which opened its first Ginza store in September 2008 is still in operation and has no signs of slowing down. It runs a total of 90 stores nationwide and unlike Forever 21, the number is still increasing.

Why is that?

Business model and product design have a lot to do with its survival.

H & M does its product planning, manufacturing, and sales, in-house. Forever 21 relies on products developed and produced by other companies.

While fierce competition is driving more companies to innovate or become vulnerable to bankruptcy, it’s official. Forever 21 is pulling out of Japan completely by end of October 2019. The impending consumption tax increase to 10% will most likely tone down people’s appetite for shopping.

About Miki Hall