Is Forever 21 Shein's Biggest Victim Yet?

0:07Hello, and welcome to The Debrief from the Business of Fashion, where each week we delve into our most popular BOF professional stories with the correspondents who created them. I'm senior correspondent Sheena Butler-Young. And I'm executive editor Brian Baskin. On Sunday, Forever 21, the chain credited with, or some would say blamed for, introducing fast fashion to America, filed for bankruptcy in Delaware for the second time in six years. Unlike last time, there's little hope the retailer will come out the other side. Forever 21 is expected to close its U.S. stores, which number in the hundreds, and if it exists going forward, it will probably be as a name on licensed products sold by someone else.

0:47With us today is BOF retail editor Kathleen Chen, who has been following the ups and mostly downs of Forever 21. Hi Kat, and welcome to the debrief podcast. Hi guys. Thanks so much for having me. Fast fashion brands come and go. Forever 21 is not the first one to disappear from the retail landscape, but I think it's fair to say this one's been hitting a little harder than most. Why is that? Well, the end of Forever 21 really represents the end of an era. For a lot of millennials, such as myself, Forever 21 was the first fast fashion retailer to really hit the scene and to really go mainstream.

1:31I think I was a sophomore in high school when a Forever 21 opened at the mall that I used to go to in Pittsburgh. And before then it was Old Navy and American Eagle and Abercrombie already for me, it wasn't cool anymore, but Forever 21 just changed the game completely. It was like the trendiest things. All the bloggers on Blogspot were shopping from Forever 21. And these were, you know, adults living in these coastal cities who were shopping from Forever 21. And I was reading about that fashion online and I was able to go to that Forever 21 and buy something for$10,$15,$20, really, really chic stuff that just, you know, that level of fashion just was not available to anyone before.

2:27And it was very exciting. I mean, Forever 21 was my gateway drug into fashion. So Forever 21 has been quite troubled for a while. I think the heyday you're describing is probably 20 years, maybe 10 years, let's be charitable, in the rearview mirror at this point. What happened? I mean, why weren't they able to hold on to what attracted all those shoppers in the first place? Part of it was mismanagement. They opened too many stores and expanded too quickly. But the bigger existential threat to Forever 21 was Zara. Zara came around, H &M was there and got better. Zara and H &M dominated in the early to mid-2010s, whereas Forever 21, I would say I associate it with the late aughts.

3:14And it was the same game that Forever 21 sort of introduced, except in the text, and H &M just did it better. And then along comes Sheehan and Timu. Right, right, right. So even faster, even cheaper. And Forever 21 was just edged out. It's like you make this format and someone comes behind you and does it better than you did. It's sort of a sad but becoming a recurring theme in retail. Before we jump forward to sort of where they are today, the role that Forever 21 played in shaping consumer expectations around price and trend cycles and fast fashion. Even the micro trend, it's really fast fashion on steroids, which is what Forever 21 introduced over 20 years ago.

4:02How do they shape consumer landscape as we know it today and what we expect for price? I mean, Forever 21 did the small batch thing that Shein is known for. So basically they would come out with a million styles in six months, and it would always be in really small quantities. And so if you liked a polka dot skirt, you would have to buy it right there, right then because you know it's going to sell out or you could wait and bet on maybe Forever 21 releasing a similar product in a couple weeks, in a couple months. But I think it really changed the consumer mentality as well of instead of waiting for discounts like you would at The Gap, Forever 21 was really good at making people, incentivizing people to buy something right there, right then.

5:00And this was before AI, but somehow Forever 21 just always hit on the trends. And maybe it was easier in 2008, 2009, when there wasn't TikTok and when there weren't all these micro trends. And they could predict, they could tell you what you wanted to wear, whereas now the consumer is sort of telling them. Yeah. Yeah. I think it's really hard to fathom because like that was when, you know, we, I subscribed to magazines like Team Vogue and 17 and, and, and this was when fashion was something that you sought out versus it being something that's just sort of inundating in your everyday life because you get on social media or you get online and there are ads everywhere.

5:47And part of why Forever 21 hasn't been so relevant anymore, you know, beyond the fact that it went bankrupt five years ago and then it was managed by Authentic Brands Group, which we'll get into later, but it just, it hasn't been top of mind. It's not, you know, you don't see influencers peddling Forever 21 the way that you see influencers still promoting Shein. And I think that's a huge factor. You have to spend that money to be relevant. And I think at a certain level, it does make a difference in your business performance. Well, let's actually get into Authentic Brands right now. I mean, they're the ones who basically brought them out of that last bankruptcy back in, I think, 2019 or 2020.

6:39And it was a really unique ownership structure. Why don't you tell us sort of how the company was structured for these last few years and also who Authentic Brands Group is because they're quite interesting themselves. For sure. Yeah. So Forever 21 first filed for bankruptcy in 2019. And in 2020, the IP was purchased by Authentic Brands Group, which is this mega licensing portfolio of brands. And they were buying everyone back then, right? They bought Brooks Brothers. Yeah, Reebok, Nautica. Yeah, Nine West, Aeropostale. And they own a bunch of celebrity IP as well. And they are just so good at that game, purchasing these distressed brands and then extracting value out of them through allowing manufacturers to use these brand names to create products.

7:35It is a very salient business model. It makes a lot of sense. But I do think there is a difference between monetizing a brand and really operating it, running a label with longevity in mind. and Jamie Salter, the CEO of Authentic Brands Group. He is an incredible businessman, but I'm not sure if the company is actually putting money into the brands that they own for awareness and for relevance among consumers. And I think this is a problem that all of the brands in that portfolio have, but Forever 21 was purchased by Authentic alongside Simon Property, which is a mall landlord. And they created a joint venture called Spark Group.

8:25And a lot of other authentic brands' IPs are in that portfolio. And then earlier this year, Authentic sort of recalibrated its portfolio to create a new entity called Catalyst Brands. But the setup is similar. Authentic owns the IP and the real estate partners help operate the actual retail footprint. And I think JCPenney is tied up in that somewhere too. Yes, yes. It's quite a wonky, if that's the right adjective, ownership structure. I thought it was interesting. Jamie Salter, the CEO of ABG or Authentic, we're calling it now, said in January that buying Forever 21 was probably the biggest mistake he'd made.

9:05I mean, they put a lot of effort into like different strategies. Like he was also saying at that time that they had done this partnership with Shein that he saw some good runway, some good results from, but not quite finding its footing. What do you make of him casting it as a mistake? What do you think that means? I think it just means that Forever 21 can't beat Sheehan and it can't partner with Sheehan to the level that it would like to. I think the bigger problem here is probably less the authentic brands approach and more the involvement of Simon. And not that Simon mismanaged Forever 21 per se, but that to me says they thought of this as a mall play, as a physical retail play for a very what is now a very online concept, which is this ultra fast disposable fashion.

9:55I mean, I don't know when the last time was any of you went into a Forever 21, but you do feel like you're in the physical embodiment of like the Shein website. And like, that's not a fun place to be. I don't think. Oh, gosh. I don't think they were going for the physical embodiment of a Shein website. Well, they kind of were. They invited Shein. You could return your Shein purchases at Forever 21. Not that, I mean, who returns a Shein purchase? But like, you know, they had these oddball ideas. Like, I want to read the headlines we've run about Forever 21 since ABG bought them. Shein will sell Forever 21 clothes.

10:30Forever 21 launches a Barneys collection. Forever 21 bets you want to dress like your Roblox avatar. Forever 21 relaunches in Japan as upscale retailer. Forever 21 makes China market comeback. I mean, it's just like, let's throw everything at the wall, see what sticks. And I guess nothing did. Kat, why do you think some of these reinventions didn't work? I mean, they followed the turnaround playbook to a T, it seems like, and nothing really stuck. I'm not really sure if they did, Sheena. I mean, it is incredibly difficult historically for a brand to go through bankruptcy and come out on the other side revitalized.

11:08For every J.Crew or true religion, there are a handful of American Apparels or Wet Seals or Rue 21. Talk about another fast fashion-y mall retailer. But the problem with Wet Seal, Rue 21, and now Forever 21 is that these retailers never really had any kind of identity. I think it's hard when you're playing for value and you're playing for trend, which has become a commodity in fashion. And then if you look at the mall retailers that have done really well, American Eagle Outfitters, Abercrombie & Fitch, even PacSun, I've heard is doing well. These are players that have spent so much money on, one, defining their respective brands, and two, developing products that their customers want.

12:05And it's not about just chasing fashion, fashion, fashion the way that I think Forever 21 never got out of, the way that Shein dominates. It's about going the other direction and creating products that your customers want at a level of quality. That is the name of the game for Abercrombie. And they've just been killing it for the past five years. So you draw a very important or several very important distinctions between Forever 21 and its contemporaries that are successful. To that point, is this a predictor of more bankruptcies to come? Like, what does it have in common with other retailers that are still in business that could maybe go down this path?

12:49Or does it not have much in common with them? Yeah. Who's next to go, Kat? Name names. Oh, man. Well, there's always there's always retail bankruptcies. But I think S &P put out a report saying that retail bankruptcies are actually on track to decline this year. but you know I think there's at least a handful of big ones every single year and we can't attribute it to the retail apocalypse anymore remember guys in like 2017 every other one of my stories had retail apocalypse in the headline but it wasn't the retail apocalypse right it was just this shift that was happening where the divide between the winners and the losers became so much bigger, more divergent.

13:35Although I will note the S &P report you mentioned and this general thinking that maybe the worst is over for retail bankruptcies was before the outlook for retail in the U.S. and consumer sentiment in particular really started to darken. Kat, you've written about this as well. How has the overall picture changed, setting aside Forever 21? Yeah, you're right. With the tariffs in mind, not good. The outlook is not good. It's been a lot of, I would say, panic in the industry, not only because consumer sentiment is going to plummet, but also because the tariffs will have a very substantial impact on these fashion businesses, and especially in the sort of lower level mass retail where a lot of the manufacturing is still based in China.

14:28The other elephant in the room is this de minimis exemption that specifically was called out by the CFO in Forever 21's statement and filing that that was a huge factor, which obviously, Kat, you can explain it better than me, but if you're importing something that's less than$800 in value, you don't pay taxes or tariffs on it. And the Trump administration is going after getting rid of that, but right now it's in place and it's wind to the back of retailers like Temu and Xi 'an, right? Yes. So it's the platforms that ship directly from China to the U.S. that are exempt from any kind of duties because it's under$800.

15:08This loophole has been around for a really long time, but it wasn't until 2016 that the value that was exempt from tariffs went up to$800 from$200. And just to be clear, Forever 21 was blaming the fact that its competitors could take advantage of this loophole while Forever 21 was bringing stuff in the old fashion way in container ships and selling it through stores, which meant they had to pay tax on pretty much the exact same clothing that she and Atimu didn't. Yes, exactly. Because she and Atimu don't have to pay tariffs by skirting direct shipment, Forever 21 is at a disadvantage. I wonder if Trump had stuck with his plan to kill that loophole if we wouldn't be seeing this bankruptcy today.

15:58I think creditors might have given Forever 21 a little more time if that had gone away. But I guess we will never know. I don't know if I buy that. I don't think it's just the fact that the prices are lower. I think if they're not hitting on the right trends, if they're not visible where customers find influencers, I don't know, affiliate links, if they're not in the market, then they're not going to be able to compete with Shian and Timu, even if their prices are just as low. So we're not buying what the CFO has attributed this decline to, which is our competitors have a cheaper loophole to get goods into the country.

16:41And also we tried everything. Personally, I do not. They tried everything except selling clothes people wanted to buy. We'll be back with more of The Debrief right after this.

17:00we talked about forever 21 being mismanaged but actually for a while there after that first bankruptcy they had a pretty well-regarded ceo winnie park who had come from paper source and she had some good ideas and i think her reputation is more or less intact despite how the company ended up but sheena you talked to her fairly early in her tenure can you tell us about her approach to the company and, you know, why it might not have worked. You know, it's interesting. I will, what I learned from Winnie in talking to her was a feature that we'd done about the glass cliff. And if anyone's not familiar with that, it's this idea that women or people from marginalized communities are tapped for leadership roles when like the situation is so dire, it's unlikely to turn around and then the person is hired and they're essentially pushed off the glass cliff.

17:51And so there was chatter when Winnie Park was brought in to lead Forever 21 post bankruptcy that she was sort of a glass cliff hire. And she contextualized it differently and said, I don't think that's the case. I think when things are so challenging, they pick the best and brightest, which she said could be is often a woman or someone from a marginalized community. She's fortunate in that like she led them through some tough periods and was able to leave with her reputation intact. In fact, she landed at Five Below, which is a more, I think people would say a more exciting and successful retailer right now with the Gen Z and the Gen Alpha audience.

18:28And she landed there in December. So right before the going got really tough, she managed to leave with her reputation intact, which I think is smart. It's smart of her. I love Five Below. I mean, they sell really cheap stuff as well. I mean, I'm sure for what, You know, they sell like everything from candy to, you know, posters and room decor and makeup aimed at kids. And it's a lot of like cheap stuff probably made in overseas, you know, very similar in some ways to Forever 21. But it feels a little more fresh and modern and curated even. Although I'm looking now at her appointment and Five Below's sales are also in decline when they brought her in.

19:05So maybe she just hopped from one glass cliff to another. Oh, well, let's hope it's not a glass cliff, but transformational. My daughter certainly hopes Five Below is not going anywhere. You know, we've talked a lot about contemporaries and competitors of Forever 21 that are more successful, but fast fashion isn't exactly just on an unrelenting upward trajectory. It has its own challenges. Kat, what do you think is the future of fast fashion? Where does it go from here? That's a great question, Sheena. I think the bifurcation of fast fashion is going to continue. and maybe in five years that term is going to be very abstract because it's not going to be the iteration of it that we've seen in the past 10 years.

19:50You have in the text going super elevated and to an extent H &M is trying to straddle this balance between elevated but also affordable. We'll see how that goes for H &M. And then you have the very, very, very low end with Xi 'an and Temu, which were explosively growing in the last two years. But I feel like among consumers, you know, these platforms are starting to lose their luster. The threat of De Minimis going away, you know, is looming. And I don't know, there's going to be a next big new thing on the horizon, you know? And again, it's just so hard to try to compete on value alone. You guys mentioned Five Below.

20:41Then I also think of TJ Maxx. These are value players, but there is an element of surprise and delight in that shopping experience. And so I think with fast fashion, it can't just be cheap, affordable. I think there needs to be cheap, affordable and. And that is a lovely note to end on. Please be sure to check out our coverage of the Forever 21 bankruptcy and other breaking news at businessoffashion.com. Our stories are available to BOF professional subscribers only. And you can find a link to sign up in the episode notes. You've been listening to The Debrief, produced and edited by Olivia Davies and Eric Bria.

21:22I'm Brian Baskin. And I'm Sheena Butler-Young. We'll be back next week with a new episode. Thanks so much for joining us and be sure to follow us wherever you get your podcasts.