I. Company Overview
The apparel industry is a highly competitive and almost exclusively based on image. As fashion becomes "fast", i.e. designing and selling apparel becomes more for masses as opposed to a conventional haute couture model, established and emerging players alike are competing over an increasingly powerful market segment, namely Millennials, who continue to shape business across different industries. Forever 21 is one notable example of apparel companies competing, primarily, over Millennial customers. Forever 21, operating in seven countries in addition to Europe, is a notable example of an established apparel player adapting to continuous changes in apparel and fashion industry, as is shown in further detail in next section, in an attempt to better capture different customer segments. For current purposes, Forever 21 USA remains paper's central focus of analysis.
Founded in 1984 and headquartered at 3880 North Mission Road, Los Angeles, CA 90031, United States, Forever 21 is a fashion and specialty retailer of women's, men's and kids clothing and accessories ("Company Overview of Forever 21, Inc.," 2017). The company's range of products, sold in stores and online, are indeed large spanning across clothing, accessories, body jewelry and swimwear, a portfolio diversity which has only diluted company's brand, as discussed in further detail in next section, and runs against an established definition of a specialty retailer operating in a specialty industry consisting of " companies engaged in the operation of stores and dealerships concentrated on a single product" ("Retail – Specialty," n.d.). If anything, Forever 21 has expanded in financial clout (to hit an $8 billion mark by 2017) and to increase U.S. stores up to 600 over next three years ("About Us," n.d.a). Moreover, Forever 21 has one of nation's largest stores spanning areas from 38,000 square feet to 162,000 square feet. (This is a business concept which is proving increasingly less viable, as is shown in further detail in next section, as buying behaviors shift online.)
The paper is made up of four sections in addition to Company Overview: (1) Environmental Scan: SWOT & PESTEL, (2) Porter's Five Forces Analysis, (3) Recommendations and (4) Conclusion. The " Environmental Scan: SWOT & PESTEL" section offers a broad overview of Forever 21 USA market conditions, operation environment at macro and macro levels. This includes, more specifically, SWOT (Strengths, Weaknesses, Opportunities and Threats) and PESTEL (Political, Economic, Social, Technological, Environmental and Legal) analyses each highlighting different areas in company's operation environment and market conditions. The "Porter's Five Forces Analysis" section offers an in-depth analysis, at a macro level, of Forever 21 USA's network of partners, competition and customers. More specifically, Forever 21 USA's competition, emerging new entrants, product / service substitutes, supplier power and customer bargaining power are examined in order to asses Forever 21 USA's market competitiveness, or not, in current operation environment. The "Recommendations" section offers informed business advice on how Forever 21 USA can better optimize current practices, if possible, in order to leverage performance, internally, and expand into new markets and develop new customer segments, externally. The "Conclusion" section wraps up argument and offers further insights into Forever 21 USA's current and future business practice.
II. Environmental Scan: SWOT & PESTEL
Fast fashion has become, as noted above, an increasingly powerful market niche in which established and emerging fashion and apparel players are fiercely competing to make up increasing losses in conventional haute couture business practices. Forever 21 USA is facing similar challenges in addition to broader industry risks informed by changes in business models, customer buying behavior and, not least, customer engagement practices and strategies.
Notably, retailers, particularly specialty ones, are increasingly advised to restructure in order to makeup losses incurred in conventional promotion and sales models and in favor of online shopping and off-price store visits (Loeb, 2016). The call for retail restructure is underscored by real market challenges not particularly in favor of specialty retailers, including Forever 21. These include, for example, rapid web- and mobile-based retail sales, aggressive U.S. expansion of low price international retailers such Primark, Aldi and Lidl (Loeb). Moreover, customer buying behavior and makeup are changing in multiple, unprecedented ways.
Millennials are, as is consistently noted, key to success and growth in apparel and fashion industry in upcoming years. Against a long history of big physical stores and promotional sales, off-price concept, for which Forever 21 has launched F21 Red, as well as Internet shopping have become increasingly adopted by younger shoppers who are no longer interested to visit physical stores, let alone purchase apparel at slightly higher prices (Fickenscher, 2016; Kapner, Jarzemsky & Mattioli, 2015 ). In response, Forever 21 USA has opened a series of off-price stores, under F21 Red brand, in order to offset losses in conventional stores and to adapt to customer's changing buying habits (Kapner, Jarzemsky & Mattioli). Still, response of specialty retailers to changes in customer buying habits is informed by another significant factor. Technology is, more specifically, a highly popular product / service which Millennials in particular are passionately after (Loeb). Millennials are, after all, "funded" primarily by parents, if still at college or self-funded, if young professionals. The emergence of new mobility devices and services has created a situation where Millennials have to "juggle" budgets in order to cater for needs for different brands. From an apparel specialty retail industry perspective, optimizing price marks across different sales channels becomes a maximum priority, at least to survive, let alone to maintain an increasingly "fickle" customer base and grow business.
Forever 21 USA operates in a highly competitive industry, i.e. teen retail. This industry is under increasing pressure for reasons mentioned above. The pressure can be felt in Forever 21 USA's market positioning and business operations. Notably, Delia's and Debdid filed for bankruptcy in 2015, Wet Seal fired around 4,000 employees, Abercrombie and Fitch performed broad rebranding in order to appeal to Millennials in 2015 and, in 2014, Aéropostale lost $84 million in cash and is widely projected to close shop (Lieber, 2015). This does not mean, of course, that Forever 21 USA is performing all too well to fail. In contrast, Forever 21 USA is facing an identity crisis. More specifically, as Forever 21 USA has expanded over years, industry insiders and experts, let alone customers, began to question what Forever 21 USA stands for after all (Lieber). Increasingly diverging from a specialty retailer, Forever 21 USA appears to have no clear brand identity, an observation which can be made particularly on company's social media channels. Brand Name aside, i.e. Forever 21, Forever 21 USA appears to sell apparel for almost about every age segment who would put one same clothing outfits, as shown in image below. Although not being limited by one specific age group, and for that matter one specific customer segment base, might appear a sound business strategy, Forever 21 USA risks to dilute own brand by diffusing brand associations in customer minds across different marketing and communication channels.
Figure 1. A selection of Forever 21 USA's women's collection. This figure highlights how Forever 21 has a diluted brand image. (Forever 21, 2017a; Forever 21, 2017b; Forever 21, 2017c; Forever 21, 2017d; Forever 21, 2016b; Forever 21, 2016c)*
In customer engagement area, Forever 21 appears to have a brand dilution challenge as noted above. By rolling out different clothing and accessory products which are, if anything barely compatible in feel or look, Forever 21 remains undecided as to which messages should address which customer segment, particularly from an age-based segmentation perspective. For example, in projecting an image of athleticism for younger segment customers, Forever 21 features Kelly Gale, a sports celebrity among Millennials, to highlight new year's athletic collections (Forever 21, 2017e). The overall feel of Gale's stint addresses teen Millennials and does not address athletic wear needs of "more mature", female, working professionals. This "teen" message is frequent across different social media platforms. For example, Sylvia Gani, young beauty expert who has broad appeal to female teen Millennials, is featured in numerous makeup sessions (Forever 21, 2016a) in what amounts to what is frequently referred to as a shift in American culture, particularly for teen Millennials who have an almost narcissist image of self ("The Narcissism Epidemic," n.d.). In so doing, Forever 21 does appear to cater for needs of female young professionals such as Yahli Becker, an Agency CMBS Trader at J.P. Morgan U.S. (J. P. Morgan, 2015).
Thus, in order to sum up above analysis in a more focused, snapshot format, Forever 21 can be said to have Strengths, Weaknesses, Opportunities and Threats in a SWOT format as follows:
Established brand over 30 years, although more recent practices and expansions into product and customer segment offerings have diluted company's image and hence resulting in a brand management challenge.
More aggressive expansion into off-price concept including, most notably, launch of F21 RED ("About Us," n.d.b). This departure from company's conventional and established business model of big stores is a positive which Forever 21 should further build on as discussed in further detail under "Recommendations".
Active business partner engagement. This is evident in Forever 21's Affiliate Program which offers both monetary and brand visibility offerings ("Forever 21's Affiliate Program," n.d.).
Customer Loyalty. Forever offers Forever 21 Credit Card accounts, a practice which, albeit not a novelty and is adopted by numerous retailers including most notably Wal-Mart, is critical to maintain customer loyalty, particularly customers who are price sensitive during economic slowdowns or recessions ("Forever 21 Credit Card," n.d.).
Increasingly diluted brand image
Increasingly outdated business model based on conventional physical store visits
Emerging Millennial customer base. Indeed, Forever 21 USA is well positioned to provide value differentiated clothing and accessory offerings for a customer base which has been, essentially, company's core customer segment.
Brand visibility. The physical presence of Forever 21's stories across U.S. can be an asset, not a liability. True, some stores might be evaluated for closure. However, physical stores can be innovative marketing and promotion hubs by which Forever 21 can further enhance her brand image. More specifically, Forever 21 can perform an in-depth marketing research in order to equip specific stores with latest technologies in order to capture younger customers who are more or less tech savvy. Stores close to colleges and universities can be best picks for a complete revamp of store's design and layout including, for example, on-wall touch panels to order, inquire about or simply browse different collections.
Competition. Needless to say, competition is apparel industry and specialty retail in particular is fierce. This competition has become even fiercer as emerging startups continue to roll out innovative product offerings via digital platforms.
Liquidity. The aggressive approach to store opening over years has exacted Forever 21's financials and hence compromised company's ability to pay out loans, let alone approach new lenders. This liquidity challenge poses a serious threat to Forever 21 namely, by crippling company's ability to invest in areas, most notably technology, which is critical for company's future in light of changing buying behaviors.
In a PESTEL format, Forever 21's operation environment can be summed up as follows:
Forever 21 USA operates in a country in which apparel industry is subject to political jockeying. More specifically, in order for Forever 21, and for that matter specialty retailers, to remain competitive, labor cost is one component which is more often than not compromised. Typically, cheap labor, including most notably Mexicans and Chinese immigrants, is hired on an unfair payment basis in order to maximize profits. Numerous apparel companies hire illegal immigrants or temporary workers who, in fact, stay well beyond permitted employment periods. If anything, clothing companies lobby influential elected officials in order to bypass legal labor recruitment laws and regulations in order to maximize profits. The recent political developments, particularly U.S. presidential elections, lend immigration an increasingly urgent dimension. If anything, fashion, specialty retail and fast fashion industry should act as soon as possible in order to adapt to possible changes in immigration laws which might impact on industry's profitability, if not survival.
The United States is one of world's most important markets. If anything, Forever 21 drives largest part of company's revenue from US. Unsurprisingly, U.S. remains main driver of growth for Forever 21. Accordingly, Forever 21 USA should review current market positioning strategy, as discussed in further detail under "Recommendations" section, in U.S. The business model Forever 21 USA has long adopted needs, more specifically, to be readapted to a changing economic and business ecosystem now defined more by mobility and web-based entrepreneurship.
Forever 21 enjoys a well established brand reputation built over years. This is made even more in company's favor as Millennials emerge as most important customer base not only in apparel industry but in all. The preferences of Millennial customers should assume more priority in company's business agenda. This can be enacted by changing store experience "feel", enhancing company's digital presence and championing most active Millennial shoppers by offering more discounts and appointing active shoppers as Brand Ambassadors. The emphasis on social and communication aspects in shopping experience is particularly important for Millennial customers who, above anything else, are most active users on social media platforms and most mobile users of different mobility devices.
The United Sates is a major innovation hub. Typically, U.S. companies are first to stay abreast of latest technologies. Thus, Forever 21 is operating in a market which is well advanced on technological front, although Forever 21 needs to make better use of available technologies. Technology is, accordingly, one most critical component Forever 21 USA should consider for, as is discussed in further detail under "Recommendations", in upcoming years in order to enhance company's market positioning, particularly among Millennial customers.
Typically, apparel industry has an unfavorable environment record. In U.S., environmentally-friendly laws are becoming increasingly common. Thus, Forever 21 is advised to audit her environment stewardship and sustainability practices.
The election of a new president in U.S. poses a serious challenge for apparel and fashion companies. As noted above, illegal / undocumented immigrants hired by apparel and fashion companies are more likely to face serious legal challenges which undoubtedly would impact negatively on employers.
III. Porter's Five Forces Analysis
Competition is High for Forever 21 USA. This is justified by industry's nature (prone to brand image management), growing number of emerging players (particularly ones offering up of-price products over digital platforms) and, of course, by current slow growth rates.
→ Threat of New Entrants
Forever 21 USA faces a High threat of new entrants as conventional entry barriers are becoming increasingly lower. Thanks to more effective supply chain management practices and emerging technologies, smaller companies can now find a firmer foothold in a highly competitive industry.
→ Bargaining Power of Suppliers
Forever 21 USA faces a challenge of High bargaining supplier power. This is justified by crowded industry players who continue to form broad networks for suppliers in different operation areas. Notably, supplier power becomes even stronger in case of Forever 21 as international brands (enjoying high popularity in US) become increasingly viable business partners for U.S. and international suppliers.
→ Bargaining Power of Customers
Needless to say, Forever 21 USA faces a High customer bargaining power. This is justified by substitutability of Forever 21 USA's products from different clothing and accessory brands.
In order for Forever 21 USA to reverse what appears to unfavorable market conditions, Forever 21 USA is advised to:
Invest aggressively in digital platforms in order to adapt to changing customer buying behaviors,
Enhance brand identity by further differentiating product offerings for different customer segments,
Revamp physical store presence in order to appeal to Millennial customers.
Develop an integrated environment stewardship strategy, audited by external parties, in order to enhance company's environment record,
Lobby in Congress for more balanced Employer-Temporary Immigrant Worker relationship in order to ensure company's profits are not hurt and to cater for legitimate calls for legal immigration.
In balance, Forever 21 USA is at crossroads. Beset by changing customer buying behavior, emerging competition and an increasingly outdated business model, Forever 21 USA needs to review her brand positioning strategy. Moreover, as fast fashion and specialty retailing become increasingly competitive, even crowded by numerous players, Forever 21 USA is recommended to adopt specific strategies to help reverse an unfavorable recent course. Specifically, Forever 21 USA is advised to invest extensively in digital presence and in-store experience and to enhance brand identity by better customer segmentation and brand value differentiation.
About Us. (n.d.a). Forever 21. Retrieved from http://www.forever21.com/Company/About.aspx?br=f21
About Us. (n.d.b). F21 Red. Retrieved from http://www.forever21.com/f21Red/about_us.html
Company Overview of Forever 21, Inc. (2017, January 24). Bloomberg. Retrieved from http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=4220077
Fickenscher, L. (2016, April 28). Forever 21 is having problems paying the bills. New York Post. Retrieved from http://nypost.com/2016/04/28/forever-21-is-having-problems-paying-the-bills/
Forever 21. (2016a, November 9). Shine Bright: Night [Video file]. Retrieved from https://www.youtube.com/watch?v=n1ipFwfcqYI
Forever 21 (2016b, November 16). Untitled photo of an Asian-origin girl with black hair, sunglasses and long, black coat. [Online photo]. Retrieved from https://www.instagram.com/p/BMwphy3j4xo/?taken-by=forever21
Forever 21 (2016c, November 16). Untitled photo of a young, blond woman with black sunglasses and black leather jacket on sitting on a wooden staircase. [Online photo]. Retrieved from https://www.instagram.com/p/BMnJ_rPD4R7/?taken-by=forever21
Forever 21 (2017a, January 4). Untitled photo of a blond girl sitting on a couch. [Online photo]. Retrieved from https://www.instagram.com/p/BOoIw5TDhRv/?taken-by=forever21
Forever 21 (2017b, January 4). Untitled photo of a grey-dyed hair girl shown from back. [Online photo]. Retrieved from https://www.instagram.com/p/BOxTjhSjxNh/?taken-by=forever21
Forever 21 (2017c, January 11). Untitled photo of a black hair woman on high, strapped heels and dark purple dress. [Online photo]. Retrieved from https://www.instagram.com/p/BPDtc2dj2gZ/?taken-by=forever21
Forever 21 (2017d, January 11). Untitled photo of a blond girl on black, hot short fiddling with her cell phone. [Online photo]. Retrieved from https://www.instagram.com/p/BO-XXkFDVNM/?taken-by=forever21
Forever 21. (2017e, January 19). The Active Collection 2017 [Video file]. Retrieved from https://youtu.be/m3BCvk6fzn0
Forever 21 Credit Card. (n.d.). Forever 21. Retrieved from http://www.forever21.com/f21creditcard/Default.aspx
Forever 21's Affiliate Program. (n.d.). CJ Inc. Retrieved from https://signup.cj.com/member/signup/publisher/?cid=4529306#/branded?_k=lz1oh2
J. P. Morgan. (2015, July 15). A Day In The Life of a Trader | Employee Profiles | J.P. Morgan [Video file]. Retrieved from https://www.youtube.com/watch?v=Do68r7hF4Zs&t=83s
Kapner, S., Jarzemsky, M., & Mattioli, D. (2015, August 31). Forever 21 Rethinks Its Love of Giant Stores. The Wall Street Journal. Retrieved from http://www.wsj.com/articles/forever-21-in-talks-for-150-million-loan-1441047545
Lieber, C. (2015, March 9). Forever 21 Has an Identity Crisis—and It Works. Racked. Retrieved from http://www.racked.com/2015/3/19/8253211/forever-21-retail-strategy
Loeb, W. (2016, January 4). Why Retailers Must Restructure In 2016. Forbes. Retrieved from http://www.forbes.com/sites/walterloeb/2016/01/04/every-sign-is-saying-retailers-must-restructure-in-2016/#11e831785f94
Retail – Specialty. (n.d.). The New York Times. Retrieved from http://markets.on.nytimes.com/research/markets/usmarkets/industry.asp?industry=53416
The Narcissism Epidemic: Living in the Age of Entitlement. (n.d.). Retrieved from http://www.narcissismepidemic.com/