Forever 21 filed for Chapter 11 bankruptcy protection earlier this week, reporting more than $1 billion in liabilities. The fast fashion retailer, which rose to popularity banking on its frequent new styles and affordable fashion, was weighed down by its rapid real estate expansion, consumers’ changing preferences and new competition from an emerging threat — the $24 billion used clothes market.
More Traditional Shoppers Move Online
A major reason for Forever 21’s fall is attributed to its inability to adapt to changing consumer preferences. Shopping online was a key trend the fashion chain couldn’t keep up with, especially when it came to competing against more structured online retailers such as Amazon.com (AMZN - Free Report) . You can see the complete list of today’s Zacks #1 Rank stocks here.
As more consumers shop online, retail ecommerce sales have grown consistently over the last few years. In fact, such sales are projected to grow to $6.54 trillion globally in 2022, per a Statista report. Needless to say, it’s a tough road ahead for brands operating brick-and-mortar stores that wish to meet consumers’ changing tastes.
These brands not only need to expand into ecommerce but also compete with rivals in the domain and meet the demands of a vast, growing consumer base that predominantly shops online. This is where Forever 21 failed. On top of that, the store expanded aggressively and opened 815 stores worldwide, which took a toll on its finances.
Forever 21, however, has support to carry out its operations through bankruptcy. Existing lenders along with JPMorgan Chase (JPM - Free Report) have lent the company $275 million in financing. The company has also obtained $75 million in new capital from TPG Sixth Street Partners, along with some from its affiliated funds.
But Forever 21’s problems aren’t just limited to its hasty global real estate expansion and online sales incompetency. The problem lies with the brand’s core strategy — fast fashion.
Sustainable Fashion over Fast Fashion
The company, along with many others in the domain of fast fashion such as Zara and H&M, are facing strict competition from the second hand apparel market, which was worth $24 billion in the United States in 2018. Fast fashion was worth $35 billion last year.
Los Angeles-based Forever 21 rose to fame by making “fast fashion” popular along the younger generation. Fast fashion refers to inexpensive fashion products that sport designs from catwalks and latest fashion trends. But fast fashion also results in increasingly obsolete clothing items and accessories as new trends take over. This leads to more waste generation.
But lately, lightning fast fashion trends are witnessing lower popularity, thanks to consumers’ growing interest in sustainable fashion. As more brands, designers and retailers opt for environment-friendly, reusable fashion, demand for fast fashion could go down.
In fact, per retail analytics firm GlobalData, the used-fashion market in the United States could reach $64 billion, while fast-fashion could hit $44 billion by 2028. Brands such as Reformation, that offer sustainable clothing, are growing. In such a scenario, Forever 21’s descend is only understandable.
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