Customer Experience, Industry Trends, Retail

Forever 21 Bankruptcy: A Scary Reminder of Retail Challenges

News of the Forever 21 bankruptcy filing in late September 2019 left the retail world a bit spooked, and for good reason. Just four years removed from its sales peak of $4.4 billion in 2015, Forever 21 joins the growing list of retail bankruptcies that has come to be known collectively as the “Retail Apocalypse,” which includes well-known victims like Payless ShoeSource, RadioShack, and Sears. Like Michael Myers on Halloween night, retail struggles seem to be an unkillable force.

But despite the now seemingly commonplace nature of closures these days, the Forever 21 bankruptcy news likely resonated with many because of the exposure they had to the company. Even if you’ve never shopped at one of the company’s expansive stores, chances are you’ve at least passed by one: Forever 21 has nearly 800 stores worldwide (549 in the U.S.) and has been a staple of the American mall scene over the last 25 years.

Ironically though, Forever 21’s large volume of in-mall stores may have played a contributing role in its current situation. The decline of foot traffic in malls likely played a significant role in the company’s recent sales decline, and, as reported by CNN Business, the company has an annual occupancy cost of $450 million. Combine this with a waning consumer interest in “fast-fashion” – Forever 21’s market segment – and you have a business nightmare that even Freddy Krueger would be proud of.

Here forever lies Forever 21?

Despite its current doom and gloom situation, there may be light at the end of the tunnel for Forever 21. The aforementioned CNN Business report also notes that the company plans to close 200 stores and significantly cut back on its international footprint in a broad cost-saving initiative and refocusing of the business’ goals. While this will certainly help the company avoid a gruesome fate, it shouldn’t be (and certainly won’t be) the only major changes the company makes to come back from the dead.  

One of the more critical shifts will be for the retailer to utilize data on customer preferences and buying habits to better understand its customer base. A recent New York Times report on the Forever 21 bankruptcy revealed that segments of the company based merchandising decisions off previous years’ sales, and that it lacked some of the necessary insights to prevent it from venturing into business areas with riskier ROI. What the company really needed was a more data-driven business approach to its business planning.  

Take customer data for example. IForever 21 had been completely data-driven, it could have performed customer data segmentation to identify and better react to its customer base’s shift toward e-commerce sooner. Further, this data segmentation could have identified the company’s products that were the most under- or well-performing, allowing it to tactically allocate marketing and merchandising resources accordinglyThese kinds of insights provide a clearer picture on customer trends and preferences, and in a retail climate where customer centricity is key, they could be the difference between success and failure. 

Will Forever 21's narrative end up a ghost story or fairy tale?

There is without a doubt a myriad of factors that contributed to the Forever 21 bankruptcy filing, including self-inflicted wounds and others out of the company’s control. While it might seem like there are now more retailers six-feet-under than still in business, the reality is that the majority of retailers are weathering the storm and adapting to the changing landscape. But for those retailers struggling to stave of the Retail Reaper, it’s not too late to make changes to your business.  
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