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Why Do Businesses Fail?

Updated: Oct 8, 2021

Let's talk about Forever 21. The retail legend paved the way to fast-fashion shopping. More than three decades ago Korean immigrants Do Won Chang and Jin Sook Chang invested $11,000 of their savings to start the business, and then grew it to 600 stores across 57 countries with over 30,000 employees.

This rapid growth and immediate profit were due to the perfect market fit. Targeting young people who have the need to constantly update their wardrobes with the latest fashion trends, but don’t have much money for it, affordable Forever 21 quickly grasped their attention.

At its peak in 2015, Forever 21 made $4.4 billion in revenue. However, ver soon this dream became a nightmare… so in 2019 the fast-fashion giant had to file for bankruptcy protection, closing more than 178 stores worldwide.

What caused the collapse of Forever 21?

1) Forever 21 disconnected from their target audience

Initially, the retail company built its empire by producing a unique line of products for an underserved niche of young fashionistas. And instead of improving and boosting the engagement, they went too broad, adding a plus + curve line, beauty line, and men’s life. So the brand appeared to be confusing and incoherent.

2) Poor online experience

For a very long time, the Forever 21 website looked very outdated and wasn’t set up for optimal conversions. While its competitors, such as Zara and H&M, were actively developing their online platforms, allowing consumers to buy clothing right in the comfort of their homes.

3) Obsolete business strategies

Sustainable shopping and the idea of eco-friendly living are gaining more and more popularity among young people, especially GenZ. As a huge fast-fashion retailer, Forever 21 not only failed to address these emerging pain points, but they also failed to change, whilst their major competitor Zara was adapting to the new market environment and reinventing their business model. Though Zara is not the best at it, they are trying though!

4) Stubborn management

The desire of the founders to retain overall control was a serious hindrance to the business restructuring initiatives. It was also reported by Bloomberg that the company asked landlords to take a stake in the business in order to raise the business’ funds needed for maintaining trade.

What brands can learn from the Forever 21 tragedy?

There are several important entrepreneurial lessons that brands, especially in the fashion industry can take from Forever 21’s experience:

1. Analyse the trends and competitors

Companies should constantly monitor the market situation, customers’ preferences, and what rivals are doing. Flexibility and adjustability are vital for a brand’s survival.

Forever21 ignored the market evolution, which led to its inability to compete and meet the consumers’ demand.

2. Connect with your audience

No need to be everything for everyone. Choose narrow and specific market placement. You’ll be able to offer proper solutions and win the race, only if you really know your customers and feel their pains.

Looking back to Forever 21, they tried to be universal, totally forgetting about their initial audience of teens that actually brought them their success.

3. Deliver a great customer experience

To put good products on the shelves is not enough, people want to get pleasure from the entire process and satisfaction afterward. Convenience, effortless, inspiration - there are many elements of good shopping.

As for Forever 21’s customer experience, it was really unenjoyable: understaffed messy stores, the chaotic website, poorly structured sales offers... So the returning rates were constantly low.

4. Reduce operational costs

A brand that is following the market direction should cut down overhead costs when profits are not coming in as they used to be. It will allow preventing further losses as they will reorganise their strategy on how to get back on track.

For some reason, Forever21 persisted in opening stores in shopping malls, even though foot traffic was dwindling. Moreover, they opened big-box format stores with high rental rates making it one of the most expensive real estates tenants in New York.

An instructive story

Unfortunately, as it’s happened with Forever 21, not all business empires maintain everlasting success. To ensure the viability and longevity of your business, it’s highly important to revise the brand relevance and align it to the changing market environment, be customer-centric, and open to innovations.


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