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3 reasons Forever 21 went bankrupt

Forever 21 files for bankruptcy
Forever 21 files for bankruptcy protection 00:16

South Korean immigrants Do Won Chang and Jin Sook Chang founded Forever 21, originally called Fashion 21, in 1984 with $11,000 in savings — within a year, the "fast-fashion" seller had revenue of $700,000. Three decades on, the couple were worth nearly $6 billion, according to Forbes.

Yet the apparel chain's success also sowed the seeds of its failure, culminating in Forever 21's move on Sunday to declare bankruptcy and announce the closure of up to 178 stores. Here are three reasons the once-thriving retailer ended up in the bargain bin.

Online competition

Along with fashion competitors such as H&M and Zara, Forever 21 helped popularize fast fashion in the 2000s by hawking trendy but affordable clothes before they had even made it off the runway. But the company struggled to keep pace when its mostly millennial shoppers shifted their spending online to internet fashion retailers like London-based ASOS, as well as ecommerce powerhouses like Amazon.

"There are risks in the fast-fashion model. There is less margin for error — particularly as companies grow. If a retailer misreads the trends, they end up with the wrong inventory positions at higher volumes," Greg Portell, lead partner at consulting firm A.T. Kearney, said in an email. 

Too many stores

For years, Forever 21 aggressively expanded its store footprint in shopping malls, even as foot traffic dwindled. It also opened many big-box format stores, averaging about 38,000 square feet, despite the high overhead costs.

Forever 21 has about $500 million worth of debt, according to market research firm Mintel. The retailer plans to slash costs by closing many of its stores in North America and retreating from markets in Asia and Europe. It will continue to operate in Mexico and Latin America. The company, which filed for Chapter 11 protection, said it plans to restructure and eventually emerge from court supervision.

"In order to get the business back on track, lenders would have to be willing to pump more money into it and this could be a hard sell," Chana Baram, retail analyst at Mintel, said in a statement. "Only time will tell what will happen, but these are certainly troubling times for the fast-fashion retailer."

Cheap chic no longer in fashion 

Forever 21, so named by founder Do Won Chang so shoppers can feel forever youthful, also fell out of style as younger shoppers increasingly demanded higher-quality goods even at low prices. Fast-fashion retailers have also faced criticism for the fashion industry's toll on the environment. Apparel and footwear production accounts for 8 percent of global greenhouse gas emissions, according to a 2018 report from Quantis.

Ariana Grande suing Forever 21 for $10 million over its ad campaign 00:28

The retailer, which is known for helping high schoolers dress like their favorite celebrities, is also facing a lawsuit from Ariana Grande, who sued the company for $10 million for allegedly lifting the concept and color scheme from her recent album, "Thank U, Next," without her approval.

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