, ,

The defining word for Forever 21 is fast: The company is fast to open new stores, fast to snap up real estate vacated by less fortunate retailers, fast to produce low-cost imitations for trendy fashions, and fast to turn over merchandise in their stores. This strategy has served the private, family-owned company well, allowing Forever 21 to grow its square footage tenfold over a seven year period, to increase its own brand offerings from one to six, and to post profits of $135 million in 2008. In the year ahead, Forever 21 plans to open at least 75 new stores in five countries. However, the future may not be quite as bright as company executives hope.

Originating as a single 900-square foot store in Los Angeles, Forever 21 now sells its low-cost trendy designs in prestigious locations such as Fifth Avenue. The company’s retail strategy is to offer every trend at far lower cost than designer items, and to keep the merchandise fresh (and the demand high) by ordering limited quantities of a style, rotating stock daily, and by turning over merchandise about twice as often as most other apparel retailers.

Expansion of this magnitude in a limited time frame is difficult to control, as retailers aiming for this kind of meteoric growth in the past have discovered. Company leaders may burn out or get sick, vendor relationships may fail, cutting costs or delivery times in manufacturing can lead to quality problems and sweatshop conditions for workers, and consumer preferences may change. Any one of these scenarios could cripple Forever 21. Most newcomers adopt more moderate growth strategies for a reason: They have proved successful for the vast majority of retailers. While Forever 21 may have found a new formula for success, it’s far more likely the company will encounter difficulties.

Already there have been signs of trouble in paradise. Forever 21 was sued in 2001 by workers claiming unfair business practices and wage violations. Forever 21’s response to these difficulties was to claim they didn’t know about and weren’t responsible for factory working conditions. Forever 21 faced new charges of copyright infringement from about 50 labels claiming the fast-fashion retailer was copying their clothes. While the judge chided Forever 21 for the number of lawsuits brought against it, one copyright law expert says that the company sees litigation as part of their business model: The company’s lawyer simply writes a check in response to claims rather than implementing a change in company practices.

Discussion Question: What is Forever 21’s retail strategy?

Susan Berfield, “Forever 21’s Fast (and Loose) Fashion Empire,” Bloomberg Business Week, January 20, 2011