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Forever 21, Inc.

Forever 21, Inc.


2001 South Alameda Street
Los Angeles, California 90058-1015
U.S.A.
Telephone: (213) 741-5100
Toll Free: (800) 966-1355
Fax: (213) 741-5161
Web site: http://www.forever21.com

Private Company
Incorporated: 1987
Employees: 7,000
Sales: $1 billion (2005 est.)
NAIC: 448120 Women's Clothing Stores; 448150 Clothing Accessories Stores

Forever 21, Inc., operates a chain of retail clothing stores catering to teenage girls and young women. It has about 400 locations, most of them in shopping malls. Forever 21's specialty is cheap chic: delivering the latest trends at low prices. Private label knock-offs make up much of its stock. In addition to its original Forever 21 chain, the company's flagship Forever XXI stores are larger and have a wider selection, including items for men. A separate chain, For Love 21, specializes in accessories. About 60 percent of production is based in the United States; this allows the company to bring new runway trends to market in a matter of weeks.

ORIGINS

The business that became Forever 21, Inc., was formed in 1984 by Do Won (Don) Chang and his wife Jin Sook Chang. Don Chang had immigrated to the United States from South Korea in 1981. According to Entrepreneur Magazine, he had worked three jobs to save up money to open the first store. Originally called Fashion 21, this first store was 900 square feet and was located on Figueroa Street in Los Angeles. Over the next few years, Chang opened more stores and eventually the chain was renamed Forever 21.

Forever 21 was incorporated in California in March 1987. Chang named himself CEO of the new company while his beautician spouse ultimately took over merchandising. Their goal was to bring new fashions to the working masses at low costs.

While other clothing companies sourced products abroad to keep costs down, Forever 21 preferred to work with domestic manufacturers. This allowed the company to get the latest fashions on the shelves well before its competitors.

The first mall-based store was opened in 1989. By this time, the company had 11 units averaging 5,000 square feet. All were located within California until 1995, when one opened at Miami's Mall of Americas. By the end of the decade, Forever 21 was up to 100 stores, some of them 9,000 square feet or more.

The company introduced its Forever XXI concept in 2001. Situated in major metro areas such as Los Angeles, Miami, and Chicago, these new flagship stores were very large, averaging 24,000 square feet.

LEGAL HASSLES

In September 2001 a group of garment workers employed by some of Forever 21's Los Angeles area contractors filed a lawsuit alleging sweatshop conditions and failure to play legal wages. After they held demonstrations outside Forever 21 stores, the retailer brought libel suits against a couple of advocate groups, charging that their picketing, leaflets, and web sites unfairly tainted the company since it was not itself the employer of the garment workers. An appellate panel tossed out the libel suit in 2004, saying state law held contracting companies responsible for labor conditions at subcontractors in the garment industry.

In December 2004, however, in response to concern of animal rights activists, the company announced it was no longer stocking fur items. PETA had picketed 20 of its stores on the day after Thanksgiving, the busiest shopping day of the year, demanding Forever 21 "stop butchering bunnies." Explaining their decision, company officials explained that Forever 21 had not carried many fur goods anyway, and good artificial alternatives were available.

Forever 21's suppliers were under scrutiny for more than alleged sweatshop conditions. Eight of them, and Forever 21 itself, were sued by Samsung Corporation for allegedly infringing copyright on the Korean conglomerate's textile patterns. The case was ultimately settled.

This was not the only such lawsuit the company would face. A unit of Abercrombie & Fitch sued Forever 21 in 2003 over allegedly copying a beach motel graphic on its tank tops. The suit claimed the picture was identical to those found on items at Hollister Company, Abercrombie's surfing-inspired chain.

ACQUISITION TRAIL

Regardless of its legal challenges, Forever 21 continued to grow. In 2003, Forever 21 bought a smaller rival, Reference Clothing Company, out of bankruptcy for $3.5 million. Reference had grown to three dozen units before collapsing in debt; Forever 21 would convert 14 of those stores to the Forever 21 name. Forever 21 had been operating 153 units before the deal.

The company opened its first overseas store in the United Arab Emirates in November 2004. Forever 21 had revenues of $640 million in 2004, but it was about to get much larger as its acquisition binge continued. Revenues reached $925 million in 2005.

In March 2005 Forever 21 acquired most of the assets of one of its main rivals, Gadzooks Inc., for $33.1 million. The purchase added at least 150 units in 36 states (Gadzooks had 243 locations in all) to Forever 21's existing 200 or so stores. Forever 21's immediate plans for its new acquisition were to keep the Gadzooks brand alive.

Based near Dallas, Texas, publicly traded Gadzooks was formed in Dallas in 1983. It had made valiant attempts to remain independent before succumbing to bankruptcy. At one time it had 425 stores and was a leader retailer for teen girls. Its attempts to sell private label goods alongside the top brands it usually carried did not add up to a winning formula, however. In 2003 it shifted its exclusive focus to females aged 16 to 22. Gadzooks revenues fell more than 20 percent to $258.5 million in the next year; it declared bankruptcy in February 2004 after its financing collapsed. While Forever 21's Gadzooks purchase was considered a bargain for the number of new stores it brought, it did nevertheless represent a large gamble.

Forever 21 continued to open two dozen or more stores a year. There were also a couple other concepts in the works. The company was beginning to offer men's clothing through its flagship Forever XXI stores. It had also started another chain, For Love 21, which specialized in accessories. Forever 21 was preparing to open dozens of stores north of the 49th parallel beginning in 2007 or 2008. It had operated a small boutique in Edmonton, Alberta, since 2001. New international locations included Singapore and Jordan.

COMPANY PERSPECTIVES


Celebrated by many style conscious and trend-savvy shoppers, Forever 21 has quickly become the source for the most current fashions at the greatest value. Forever 21 is growing quickly, featuring new and exciting store environments, a constant flow of fun and creative clothing designs and the accessories to make your look come together at the right price. A phenomenon in the fashion world, Forever 21 provides shoppers with an unprecedented selection of today's fashions, always changing and always in style.

Another retailer abandoned the fickle teen market when Charlotte Russe Holding Inc. sold its Rampage stores to Forever 21 in 2006. The deal was worth $14 million and included 44 locations. Some of these were soon converted to Forever 21 stores. An executive told the Los Angeles Business Journal that some were reserved for a new concept offering a different kind of women's clothing.

The company still had many competitors. Another California-based chain, The Wet Seal, Inc., began to openly imitate Forever 21's low-price, high-speed approach. At the same time, department store chains like J.C. Penney and discounters Wal-Mart and Target were becoming more fashion-conscious, some of them even developing exclusive clothing lines in collaboration with well-known figures from the world of couture. Pioneers of "cheap chic" or "disposable fashion," such as H&M and Old Navy, were also thriving.

KEY DATES


1983:
Gadzooks Inc. formed in the Dallas area.
1984:
Fashion 21 store opens on Figueroa Street in Los Angeles.
1989:
First mall store opened.
1995:
Miami gets first store located outside of California.
1997:
Company has 40 stores.
2003:
Reference Clothing Company is acquired; first overseas store is opened in United Arab Emirates.
2005:
Gadzooks is acquired from bankruptcy for $33 million; Forever 21's total revenues are estimated at about $1 billion.

The company continued to expand in its home country, planning to ultimately operate 700 to 1,000 locations in the United States. Store sizes continued to increase. A three-story, 27,500-square-foot shop debuted in downtown San Francisco in 2004. This was eclipsed by the opening of a 40,000-square-foot unit in Pasadena in July 2006. An initial public offering was a likely future event; analysts had been following the company for years.

Frederick C. Ingram

PRINCIPAL COMPETITORS

American Eagle Outfitters Inc.; dELiA*s, Inc.; Hennes & Mauritz AB; Limited Brands, Inc.; The Wet Seal, Inc.

FURTHER READING

Baeb, Eddie, "Cheap Frills: Low-Cost Chic; Grabbing Budget-Minded Fashionistas," Crain's Chicago Business, September 3, 2001, p. 4.

Bronstad, Amanda, "Garment Workers Looking Sharp in War with Retailer," Los Angeles Business Journal, May 3, 2004.

, "Pattern of Copying Comes Under Fire in Apparel Industry," Los Angeles Business Journal, August 15, 2005.

Brown, Rachel, "Fashion Retailer Forever 21 Goes on Expansion Rampage," Los Angeles Business Journal, July 10, 2006.

, "Forever 21 Tries to Expand Youth Appeal with Acquisition," Los Angeles Business Journal, July 25, 2005.

Fidler, Ben, "Egad! Forever Buys Gadzooks," Daily Deal, February 18, 2005.

, "Forever 21 Cleared to Take Gadzooks," Daily Deal, February 24, 2005.

, "Gadzooks Creditors Try to KO Sale," TheDeal.com, March 15, 2005.

"Forever 21 Agrees to Remove Fur Fashions After PETA Protest," Associated Press State & Local Wire, December 9, 2004.

"Forever 21 Opens Store in Mecca Mall, Amman," Middle East Company News Wire, February 22, 2006.

"Garment Workers Sue Forever 21 Alleging LA Sweatshop Conditions," Associated Press State & Local Wire, September 6, 2001.

Halkias, Maria, "L.A. Rival Buying Gadzooks," Dallas Morning News, February 18, 2005.

Holman, Kelly, "Leonard Green Finds Good Fit," TheDeal.com, January 25, 2005.

Lindeman, Teresa F., "New Stores Highlight Shift to High Fashion at an Affordable Price," Pittsburgh Post-Gazette, September 8, 2005.

Moin, David, "Forever 21 Drops Rabbit-Fur Items After PETA Flap," Women's Wear Daily, December 13, 2004, p. 12.

Montgomery, Tiffany, "Los Angeles-based Retail Chain Gaining on Competitors," Orange County Register, April 13, 2005.

Parnes, Francine, "Wearing Your Heart Across Your Chest; Whether Angels or Divas, Teenage Girls Are Choosing Tops That Reveal Attitude," New York Times, July 1, 2001, p. WE5.

Pennington, April Y., "Hit for Misses," Entrepreneur Magazine, March 4, 2004.

Rozhon, Tracie, "The Race to Think Like a Teenager," New York Times, February 9, 2003, Bus. Sec., pp. 1, 12, 13.

Sarkar, Pia, "Disposable Chic; For Retailers, Fashion Turnover Gets Ever Faster, Cheaper," San Francisco Chronicle, November 8, 2005, p. D1.

Scardino, Emily, "Forever 21 Acquisition of Gadzooks," DSN Retailing Today, March 4, 2005.

Strasburg, Jenny, "Hip, Flirty, Coming to S.F.; Forever 21 to Set Up Store Downtown on Market," San Francisco Chronicle, March 11, 2004, p. C1.

Strauss, Marina, "Cheap, Chic and Coming to Canada," Globe and Mail (Canada), June 15, 2006.

Turner, Tracy, "Clothing Chain Sues Retailer over Use of Design," Columbus Dispatch (Ohio), September 20, 2003.

Young, Kristin, "Forever 21 Acquires Reference for $3.5M," Women's Wear Daily, July 8, 2003, p. 21.

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