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Why Forever 21 will probably disappear forever

Brian Sozzi

Forever 21 has been eaten alive by the new monsters in retail today, digital shopping and ginormous discount stores finally offering hot fashion at their always good prices.

An inability to evolve internally has also hampered Forever 21.

One of the formerly go-to destinations for disposable fashion filed for Chapter 11 bankruptcy protection on Sunday to restructure its business. Forever 21 said the bankruptcy filing will allow it to close some international locations and focus on its core business, according to Reuters, which reported the company will also close 178 U.S. stores.

The company — founded in 1984 — sells its cheap wares at more than 800 stores in the U.S., Europe, Asia, and Latin America. (Though Reuters reports that it will shutter most stores in Asia and Europe.)

To hear Forever 21 is knocking on death’s door isn’t a shocker. In fact, one has to wonder what in the world took so long.

For starters, Forever 21 has become increasingly irrelevant in malls throughout the country. Whereas mall apparel rivals such as Abercrombie & Fitch (ANF) have invested in product quality to entice shoppers, Forever 21 has stayed true to its cheaply made, cheaply priced merchandise roots. Whereas Zara has upped its fashion game (and its prices), Forever 21 hasn’t kept pace, according to experts Yahoo Finance has chatted up.

Credit: David Foster/Yahoo FInance
Credit: David Foster/Yahoo FInance

And to add insult to injury, national apparel chains have focused on closing unproductive stores and downsizing others to drive healthier profits.

Forever 21 has been slow to even do that. And as a result, there really isn’t any reason for the chain to exist — too many better options out yonder for consumers. Too many other better positioned retailers from a fundamental perspective.

“First off they lost their way on fashion — used to be really quick in copying higher end brands. They became over assorted — less impactful on fashion, while quality declined,” said longtime retail analyst Janet Kloppenburg at JJK Research Associates. “Also the store footprint just kept getting larger and they have some huge 20,000-square-foot stores.”

So there is that entire mess.

Declining retail stores

Then there are the structural issues in retail that are no doubt pounding Forever 21 into the ground.

First, there remain too many retail stores in America amid the shift to online shopping. Unproductive retail chains must — and will — be weeded out as people reduce trips to physical shops.

The shakeout in retail is likely to be massive. Investment bank UBS estimated earlier this year that as online retail sales penetration rises to 25% from 16% currently, about 75,000 retail stores will close shop by 2026. That amounts to 7% or so of the 1,044,754 retail locations UBS says exist.

UBS believes 21,000 clothing stores out of the 82,000 in existence will have to close.

If you are near a Forever 21 — which has failed to evolve — this tsunami of store closings is likely to show up at your doorstep.

The rise of Walmart and Target

Meanwhile, the fact is discount stores such as Walmart (WMT) and Target (TGT) have gotten way better at giving shoppers what they want in apparel. The products are usually on trend and at great prices. Remember, the very existence of mall-based specialty apparel shops like Forever 21 came to be because discounters and department stores couldn’t sell good merchandise at fair prices.

No more. Plus, it’s the discounters with their large supply chains that are able to handle the rising worker wages in overseas markets and increased costs from tariffs. Fast-fashion’s business model has long been predicated on low prices because of low costs.

That is going away.

“The strength you are seeing in the retail sector is at Target, Walmart, TJ Maxx. Really the retailers that are standalones like Forever 21 and small, mall-driven retailers, those are the ones struggling because mall traffic continues to erode. The discounters have larger businesses and could offset higher costs,” said Nick Giacoumakis, strategist at New England Investment & Retirement Group.

The writing on the wall for Forever 21 has long been clear. You just had to connect the dots.

This story was originally published on Aug. 29, 2019 and updated with news of the bankruptcy filing on Sept. 30.

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