Forever 21 Prepares for Bankruptcy

Forever 21 is reportedly preparing a bankruptcy filing.  If the fashion retailer files, the will join the ranks of other retailers who were thought to be solid, including Sears, The Limited, Wet Seal, Nine West, American Apparel, Claire’s and Toys ‘R’ Us who who experienced a similar fate recently.

 

“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, recently 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.”

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. 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, Dollar Tree and 7-Eleven, which are seeing healthy expansion.

 

According to the IHL Group, 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.  “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.

 

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.”


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