When you get in your way!

The Rise and SAD story of Forever 21

In 1981, Do Won and Jin Sook Chang immigrated to California from South Korea. Sook was a hairdresser while Won worked several jobs, one of which was pumping gas. He noticed the people driving the nicest cars all worked in the fashion industry.

With the last of their $11k in savings, they opened a 900-square-foot store in Los Angeles. Their strategy was to source discounted inventory from manufacturer wholesale closeouts and pass savings along to retail customers. They did $700k in sales their first year. They called Fashion 21.

They didn’t just sell the clothes, they observed their customers, what they bought, what they held on to, what they put back, and they changed inventory every 3 days, and if it didn’t sell fast, it was rotated out. This was the secret sauce and the value prop - it was unheard of at the time and became their comparative advantage.

Cheap, trendy merchandise allowed them to profitably open a new store every 6 months. They rebranded “for anyone who wants to be trendy, fresh and young in spirit.” They generated $700,000 in revenue in their first year, and this retailer was among the first movers in fast fashion - they rebranded as Forever 21.

They asked forgiveness, not permission. And they chased after one goal SCALE SCALE SCALE!

Their customers were teens, young adults, and fast fashion addicts. They hit their peak in 2015 (before TikTok!), with $4.4 billion in global sales. They had 480 locations and were in every major American mall. The Changs were now one of America’s wealthiest couples and the embodiment of the American dream, worth $5.9 billion with 100% ownership of Forever 21.

Sadly, this is where the business model story takes a turn for the worse. They wanted to open 600 more locations in three years. The company’s value chain couldn’t keep up with the cheap, trendy merchandise at this scale. They went from trend setter to the butt of the joke

Even worse, and what I think killed their model, they couldn’t keep up or embrace the rise of e-commerce. Forever 21 stopped listening to and observing their customers. They still tried to expand by opening more brick-and-mortar stores rather than building an e-commerce business model. By 2019, millennials accounted for 60% of online purchases.

Finally, they expanded to international markets. They failed to understand localization and didn’t produce merchandise that would sell in new markets.

Forever 21 filed for bankruptcy in 2019. The Changs built something from nothing, they grew too fast and refused to change, and lost everything in 4 short years :(

I hate how this story ends. I hate to see any of our hard work crumble because of a lack of innovation in the business model. There are still many lessons of grit and execution. What is your takeaway from Chang’s story?

Thanks for reading,
Dr. A