Forever 21 is learning that bigger doesn’t always mean better — a lesson many retailers today are being forced to come to terms with.
The fast-fashion chain’s store count has swelled more than 800 in recent years as founders Jin Sook and Do Won Chang have pursued an aggressive growth strategy, often snapping up massive spaces in pricey cities. The privately-held company, founded in Los Angeles in 1984, is now a mall mainstay in nearly 60 countries worldwide, but slumping sales and expensive leases have put the retailer in dire straits, according to several recent reports.
On Wednesday, Forbes reported that, based on the company’s financial hardships, the two founders are no longer billionaires: each is now worth $800 million, putting their total net worth at $1.6 billion, down from a high of $5.9 billion just four years ago. The retailer is said to be discussing bankruptcy, hiring restructuring advisors to help renegotiate leases and downsize existing locations.
It’s far from alone in doing so: Abercrombie & Fitch told investors in May of plans to shutter three of its flagship stores within the next year in an effort to focus on what CEO Fran Horowitz called “smaller, more omnichannel spaces.” The retailer said the colossal flagships — all of which it opened a decade ago, presumably on 10-year leases — were a drag on top and bottom line growth, and not in line with how today’s consumer shops. Department stores like Macy’s, J.C. Penney and even Nordstrom are shrinking their physical footprints to adapt to changing consumer preferences, and bankrupt retailers like Sears and Payless ShoeSource are leaving thousands of vacancies around the country.
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Forever 21 could be in an especially tricky position considering how recently it signed the leases for many of its now-struggling stores. In 2014, it operated about 600 locations, and while it hasn’t doubled that number in the years since (which co-founder Do Won Chang said he aspired to do at the time), it has grown considerably.
According to a report in Bloomberg last month, a group of officials at the company recently approached landlords Simon Property Group Inc. and Brookfield Property Partners about the possibility of them buying a stake in the company (though Chang reportedly opposed such an arrangement).
Unburdened by so much costly real estate, online rivals like Missguided and Boohoo are thriving. Forever 21, experts say, has a lot of work to do if it’s going to turn itself around as a competitor.