Forever 21 bankruptcy shows retailer 'paying a big price' for mistakes
This post has been updated.
Forever 21 is filing for bankruptcy, according to The New York Times.
F21 will join the ranks of other retailers from Sears (SHLDQ) to Toys ‘R’ Us that have experienced a similar fate.
“There are some principles to success in retail and in marketing in general, and … if you fall out a line on those principles, you end up paying a big price,” Roger Beahm, executive director of the Center for Retail Innovation at Wake Forest University, told Yahoo Finance. “And I think in this case, Forever 21 failed in some respects.”
Beahm highlighted that there were a few key things a retailer needed to get right: maintain a unique type of product, keep evolving, and remain forward-thinking.
“Let's face it, retail is especially dynamic right now,” he added. “You have to be willing to take some risks.”
Survival of the fittest
The decline of traditional brick-and-mortar shops is not a new phenomenon. It’s generally believed to be a result of consumers shifting online, stimulated by the rise of e-commerce giant Amazon (AMZN). But what’s less obvious is why some retailers have managed to survive the retail apocalypse, while others haven’t.
While 75,000 retail stores are expected to close shop by 2026 according to UBS, a separate report from research and advisory firm IHL Group found that more chains are opening new locations than closing them.
These include companies like Ulta Beauty (ULTA), Dollar Tree (DLTR) and 7-Eleven, which are seeing healthy expansion.
The two key reasons why some retailers are able to weather the headwinds were that they didn’t hold too much debt and didn’t expand too quickly in the past decade, the IHL Group stated.
“Retailers without these characteristics have continued to thrive in this market,” the report noted, adding that when a retailer closes a lot of stores, “it is more of an indictment on the individual retailer rather than an overall retail industry problem as has often been reported.”
Beahm disagreed.
“I don't know that the number of stores counts so much as let's say the number of square feet per store,” said Beahm. “What you're seeing is, as consumers are changing their buying habits — from shopping purely in brick-and-mortar to buying more online — there's less need to carry the merchandise.”
And so it becomes “a matter of how much space do you allocate for those walk in customers, or those customers who still prefer to shop in brick-and-mortar versus those shoppers who prefer to buy online,” he added.
Forever 21 is not alone
Several retailers haven’t exactly had a crystal ball in the Amazon age and have ended up filing for bankruptcy in recent years. Here are a few:
Aeropostale
Established: 1973
Bankruptcy declared: 2016
Stores prior to bankruptcy: Around 800
Source: Marketplace
American Apparel
Established: 1989
Bankruptcy declared: 2016
Stores prior to bankruptcy: 110
Source: CNN Business
The Limited
Established: 1963
Bankruptcy declared: 2017
Stores prior to bankruptcy: 250
Source: Reuters
Wet Seal
Established: 1962
Bankruptcy first declared: 2015
Stores prior to bankruptcy: 338
Source: CNN Business
Nine West
Established: 1983
Bankruptcy declared: 2018
Stores prior to bankruptcy: 71 stores (and sold in 1,200 locations)
Source: USA Today
Claire’s
Established: 1978
Bankruptcy declared: 2018
Stores prior to bankruptcy: 7,500 (includes locations within stores)
Source: WSJ
Mattress Firm
Established: 1986
Bankruptcy declared: 2018
Stores prior to bankruptcy: 3,500
Source: Bloomberg
‘Retail is not going to go away’
And at the end of the day, it comes down to how quickly the company can evolve to match shifting consumer trends.
“Let's face it, retail’s one of the things that have been around since antiquity. So retail is not going to go away,” said Beahm. “The only thing that's going to change… is the old way of doing things being replaced by the new way of doing things.”
As for Forever 21, there’s one thing shoppers are looking forward to.
Forever 21 going bankrupt? Best believe I will not miss that sale
— Jayde Brenaé (@jaydebrenae) August 29, 2019
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Aarthi is a writer for Yahoo Finance. Follow her on Twitter @aarthiswami.
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