Apparel store Lessons, BM$
- Apparel store BM$ and Lessons
- Supply Chain Dynamics
- Advertising and Brand Management
- Mall Landlords
- Fast Fashion
- Key: Cut rate copycats for premium brands
- Fast cycles
- Asian founders willing to take IP and lawsuit risks
- USA Core Fast Fashion market - LatAm to some extent
- International did not have same Fast-Fashion Craze
- BM$ H&M, Zara - cut rate competitors to Mall anchors and premium brands
- STYLE RISKS: Too hard to predict, Expensive to clone and Fly goods
- Fast Fashion got Commoditized - Consumer Fatigue set in!
- "Rent Fashion", and Sustainability trend - rarely worn enough
- EC Apparel "Try & return" - got really going by 2016
- eCommerce and Retail Burst
- Mar 2020 - Covid-19
- Forever 21 Bankruptcy Analysis
- Penniless founders stumbled into Fast Fashion Trend early on
- Peak - major Mall tenants
- Too Rapid focus on expansion
- F21 Fell behind Fast Fashion Trend - not respected
- Diluted "Limited" Conspicious Consumption Mantra
- Promoters: Changs - high leverage
- Too big stores and Too much invested in Flash/Remodeling - not enough in Goods
- Chasing everything - men, kids, home-goods - lost fast fashion PREMIUM focus
- Supply Chain Under-investment and Issues - too slow behind mass copycats
- Bankruptcy Analysis
- Emergence post-Bankruptcy
Apparel store BM$ and Lessons
Mall Landlords dominant Operational Creditors in retail apocalypse
Fast fashion stores like Forever 21 became one of the largest tenants of American malls, with 480 locations nationwide. And by 2015, business was booming.
Forever 21, which currently has a total of 549 U.S. stores, will continue to operate hundreds of stores, many of which are major tenants in malls across America. The company invested heavily in the mall model, at one point operating stores in some 800 locations. Malls will undoubtedly feel the pain of Forever 21 store closures, especially heading into the holiday retail season. “Many of the Forever 21 stores are big stores, not quite the anchor roles of the department stores, but nearly so. When they close, foot traffic to malls will likely decrease, which may indeed cause other mall stores to close,” - Kahn of Wharton.
Forever 21 has already started downsizing its stores. And as one of the largest tenants of America's mall's, a widespread shutdown of Forever 21 could exacerbate what's already being referred to as the "retail apocalypse," which has already closed more than 15,000 retailers across the US and could shut down 75,000 more, according to investment firm UBS.
Able to Raise Funds - high leverage Promoters
Supply Chain Dynamics
Real cost of goods small part of List price
Sales 50%, 30% etc. - on marked up prices
Consignment - returnable goods
Discount Inventory Closeouts
Advertising and Brand Management
Economies of Scale in Brand Management
- IP is Depreciating Asset value eg celeb, brands! - Product Placement - to keep relevant in public eye! - Selling outlets - bulk "bundle" sales to retailers - Supply chain really cheap production eg of Printed posters - Legal cease-and-desist against copycats
US dominates brands - but limited appeal abroad!
Celebrity Brands - Sex Appeal Prints on
Sports Team Allegiances
Disney, Super-hero Branding
CO: Authentic Brands Group
A New York City-based brand management company. Its holdings include various apparel, athletics, and entertainment brands, for which it partners with other companies to license and merchandise.
It dominates celebrity brands, eg the likeness rights and/or estates to a number of celebrities, including Muhammad Ali, Elvis Presley, Shaquille O'Neal, and Marilyn Monroe.
Speciality VALUATION - no sentiment - need to know how much to bid - Multi-decade values Jamie Salter after he stepped down from his role as CEO of Hilco Consumer Capital—a company that was involved in the restructuring of struggling consumer brands (such as Bombay Company and Polaroid Corporation
20 years of IP growth
- 2010 founded $250m -
- 2011 Majority of the equity was sold to Leonard Green & Partners a large PE firm.
- August 2019, BlackRock became the largest shareholder in Authentic Brands
Built by "right price bidding" on Celebrities - but hard to make money on them! Depreciating Asset value!
- likeness of Marilyn Monroe - July 2011
- Estate of Muhammad Ali, and 85% stake in Elvis Presley Enterprises - Nov'13
- Shaquille O'Neal Dec'15, etc.
Buying Brands - In Bankruptcy
- Started by Silver Star and Tapout 2010
- Juicy Couture - $195m - Oct'13
- Aéropostale - Sep'16
- controlling partner of Greg Norman's consumer products business Mar'17
- Accquire Nautica from VF Corp Mar'18
- Nine West Holdings all IP winning bidder Jun'18
- Camuta Group IP - Oct'18
- Forever 21 - Apr'2020
Buying Content, Magazines, Film, TV projects - to cross leverage e.g. MEN-FANS of Bikini/Sports ..
- Sports Illustrated from Meredith Corporation for $110 m - May'19
- Sports Illustrated Studios JV formed with David Glasser’s 101 Studios - recur series of TV series/films
- Covers two-hour docuseries from SI covers!
Brand Owners/Managers - take bulk of Gross Margins
Investing in Select retailers as PE bid - keep THEIR mall stores open and close other malls
- BAM/SPG bought Forever 21 at $81m - lowest bid in bankruptcy - but will close most of Asia/Europe stores - defaulting on owed rent
- But will preserve sexy stores - majority of their own!
- F21 is oriented to FUTURE mall customers - young girls and aspirational
Key: Cut rate copycats for premium brands
The fast-fashion chains grew quickly and cultivated a following by selling trendy clothing for low prices.
Customers couldn't get enough of their affordable styles.
The company's key to success was simple: cultivate a huge following by selling trendy clothing for low prices. While this is something that today's consumers pretty much expect, Forever 21 was one of the first to do it.
F21 was the fastest. Jin Sook was eventually approving over 400 designs a day. Which meant the company could sell trends as they were happening.
Asian founders willing to take IP and lawsuit risks
Even if some of those designs landed Forever 21 in trouble for IP violations.
At worst often it was limited to "chance your designs".
USA Core Fast Fashion market - LatAm to some extent
Forever 21 has said it wants to focus on the U.S. and making sure the quality of its clothes is up to par, which could win back shoppers.
F21 plans to continue operating in its stronger regions of Mexico and Latin America. And it doesn’t plan to exit any major markets in the U.S., though it will shut dozens of stores there.
International did not have same Fast-Fashion Craze
F21 plans to exit most of its businesses overseas, in Asia and Europe.
BM$ H&M, Zara - cut rate competitors to Mall anchors and premium brands
Zara is a well-known brand in the fast-fashion space.
STYLE RISKS: Too hard to predict, Expensive to clone and Fly goods
Predicting [trends] like that, especially for young women, is always difficult.
Many legacy retailers have not been keeping up with changing consumer tastes and shopping patterns. They have been resting on old models and ways of doing things.” Creative retailers, like Amazon Go stores, have found ways to integrate their physical and online experiences to meet consumers’ shopping needs. Smart retailers, Kahn has said, know when and where to open and close brick-and-mortar locations.
Fast Fashion got Commoditized - Consumer Fatigue set in!
The change in business model, however, likely contributed to Forever 21’s financial troubles.
"Rent Fashion", and Sustainability trend - rarely worn enough
“There is a growing trend toward sustainability, which leads consumers to rent clothing, or share clothing – and Forever 21’s model is fast fashion, which is not built to last. It is less in keeping with a sustainability model,” - Barbara Kahn, a Wharton marketing professor.
EC Apparel "Try & return" - got really going by 2016
Kahn adds that the U.S. retail market has been “overstored” for a while, especially as online shopping has hit its stride.
Ironically, Forever 21 continued to overbuild stores up right until 2016 even as the retail apocalypse was starting and consumers were increasingly shopping online. The fact it was taking over big mega 100,000 foot stores from other failed ones, should have warned it time was over.
eCommerce and Retail Burst
The company's filing for bankruptcy comes as e-commerce continues to rise during a "retail apocalypse" for brick-and-mortar retailers.
I still think physical stores have their irreplaceable superiority to online stores especially for clothing markets. Photos & videos only show the colors, shapes & prices of the products, which are important factors but not the critical ones of the items to be bought. The comfort level & the whole style of your clothing really matter. Everybody is able to compare all he/she wants and has a clear idea.
Mar 2020 - Covid-19
Forever 21 Bankruptcy Analysis
Penniless founders stumbled into Fast Fashion Trend early on
- In 1981, Jin Sook and Do Won "Don" Chang moved to Los Angeles from South Korea with no money, no college degrees, and speaking little English. To make ends meet, Jin Sook worked as a hairdresser while Don worked as a janitor, pumped gas, and served coffee.
Don noticed that "the people who drove the nicest cars were all in the garment business." So just three years later, with $11,000 in savings, the Changs opened a 900-square-foot clothing store called Fashion 21. Their system worked. The store made $700,000 in sales its first year.
Bought closeouts at deep discounts. The couple took advantage of wholesale closeouts to buy merchandise from manufacturers at a discount.
Initial target deep discount mentality Korean clientele
Rapid store openings every six months. The Changs leveraged their success, opening new stores every six months, which broadened the company's customer base at the same time.
Broadened to Any age group They changed the name to Forever 21 to emphasize the idea that it was "for anyone who wants to be trendy, fresh and young in spirit."
Mastered the High Value attached to trendy fashion - discounts still huge margins.
The company's key to success was simple: cultivate a huge following by selling trendy clothing for low prices. While this is something that today's consumers pretty much expect, Forever 21 was one of the first to do it. And they were the fastest.
Peak - major Mall tenants
The fast-fashion chains esp F21 grew quickly and cultivated a following by selling trendy clothing for low prices.
Fast fashion stores like Forever 21 became one of the largest tenants of American malls, with 480 locations nationwide. And by 2015, business was booming.
At its peak in 2015 Forever 21 was bringing in more than $4.4 billion in global sales annually.
It made its founders, South Korean immigrants Jin Sook and Do Won "Don" Chang, billionaires as they became one of America's wealthiest couples, with a combined net worth reaching an estimated $5.9 billion in March 2015.
Its dilution in focus and loss of fast fashion crown could help explain why Forever 21's sales are estimated to have dropped by 20% to 25% in 2018.
Too Rapid focus on expansion
Forever 21's goal was to become an $8 billion company by 2017 and open 600 new stores in three years. But the company's aggressive expansion would also lead to its downfall.
F21 Fell behind Fast Fashion Trend - not respected
As the company focused on growing bigger, its styles became more "cookie-cutter." As a result, Forever 21 started to lose touch with its core customers, while competitors like H&M and Zara rose.
No longer the trendsetter, Forever 21 became the joke of their fast fashion industry - now wearing a F21 was an insult not a "me-too" look a like as H&M and Zara struggled to achieve.
Diluted "Limited" Conspicious Consumption Mantra
Part of what made Forever 21 popular in the first place was its fast-fashion model. Even though its products were always mass-produced, they still felt unique because its stores only sold select styles for a limited time.
Promoters: Changs - high leverage
Too big stores and Too much invested in Flash/Remodeling - not enough in Goods
Forever 21 was burdened by its massive stores that can be as large as a department store, or more than 100,000 square feet.
As the company’s founders, the Changs, wanted to open more locations quickly, and so they ended up buying bigger shops from now-bankrupt retailers such as Sears, Mervyn’s and Borders. Ironically, smaller "right-sized" stores like Ann Taylors,etc. had were harder to find, while per square fit rents (esp. in bankruptcy deals) were "tempting" for bigger stores.
Chasing everything - men, kids, home-goods - lost fast fashion PREMIUM focus
F21 was expanding existing stores to take over multiple floors with mens, children's, and home-goods sections.
Supply Chain Under-investment and Issues - too slow behind mass copycats
Its focus on expansion made it unable to invest in its supply chain, and so Forever 21 took more time to get fresh styles of clothes to market at a time when fast fashion was really picking up and shoppers were hungry for newness. Its sales tumbled as Forever 21 was pitted against heightened competition from rivals such as H&M and Zara.
It's also no longer the fastest in the game.
Internet brands like Fashion Nova churn out celebrity- and influencer-inspired styles at a rapid-fire pace.
And as e-commerce has continued to boom, traditional retailers like Forever 21 have struggled to adapt to changing consumer behaviors. According to a March 2019 survey, millennials make 60% of their purchases online and overall prefer online shopping over going to a physical store.
The company overall was $500 million in debt when it started considering filing for bankruptcy but without a real plan. Its retail unit operated at a $47.2 million loss during the month of December, on revenue of $233 m, while its Riley Rose beauty segment had an operating loss of $1.95 million on revenue of $2 m.
Forever 21 has filed for bankruptcy and will soon cease operations in 40 countries and close up to 350 stores globally.
Oct 2019, the company reports that it has secured $350 million in financing, including $275 million from investment banker JPMorgan Chase. An additional $75 million in new capital from TPG Sixth Street Partners, a finance and investment firm, will reportedly enable Forever 21 to take care of business, like processing gift cards and reimbursements.
Feb 10, 2020 - hasn't received any qualified bids beyond its stalking horse $81m bid by Simon (50% share), BAM and ABG. Simon and Brookfield represent 42% of Forever 21's U.S. locations and F21 is like a mall anchor at many malls. The retailer rented nearly 100 domestic stores from Simon specifically, representing almost 1.5 million square feet and 1.4% of Simon's domestic base rent.
Other debtors and creditors screwed. Vendors and landlords voiced worries since the bid was announced that they could lose millions of dollars after Forever 21 fell behind on payments, and that the short timeline set for gathering bids and scheduling an option was too short to maximize the company's ultimate sale value.
YouTubers love Forever 21. Take, for instance, Kayleigh Noelle, a beauty and fashion vlogger with nearly 700,000 subscribers. This spring, she posted her Forever 21 Try On Haul video, gushing, “Forever 21 is super affordable and some pieces I still have in my closet from many seasons ago. I am and have been a huge fan of their clothing for years.” Kayleigh and lots of other tweens, teens and twenty-somethings are wearing their fave Forever 21 faux suede crop tops and high-rise skinny jeans in tribute to the troubled retailer.
The company could shut down its least profitable stores and try rebranding itself. But in an age of cheap internet boutiques and fast-fashion empires, this might not be enough.
- Forever 21 bankruptcy and sale: What does that actually mean? - Vox
- Forever 21 Bankruptcy: Retailer enters deal to sell for $81 million - CNN
- Authentic Brands Group - Google Search
- Authentic Brands Group
- Here's why Forever 21 went bankrupt
- How Forever 21 went from fast-fashion empire to filing for bankruptcy - Business Insider
- Forever 21 bankruptcy financial debt details - Google Search
- Why Forever 21 Filed for Bankruptcy - KWHS
- No other bidders step up as Forever 21 nears sale | Retail Dive
- Forever 21’s Linda Chang: Overexpansion brought company to bankruptcy | Vogue Business
- Forever 21 bankruptcy: 3 reasons it went bust - CBS News