Retail Apocalypse - Is this what's going on?
Well that's what the below image shows - 16 brick and motor bankruptcies in last 3.5 years, That's huge
It isn’t the first time that we have heard a retail brand is filing for bankruptcy. Forever 21 a ‘Fast-Fashion Retailer’ headquartered in California, America, founded in 1984. The company operates on low-cost trendy fashionable offerings with about 600 stores worldwide and around $3 billion revenue. It has been expanding its presence across the globe and has stores in Africa, USA, Latin America, Asia, Europe and Oceana. In September 2019 the company filed for Bankruptcy. The company employs about 6,400 full-time and 26,400 part-time workers, this account for around 40 employees per store.
Why bankruptcy, what happened that led the company to shut its operations?
Forever-21 has been operating in a highly competitive and fast trend changing industry. In world of trendy fashion outfits, a bigger size of the business can be a bane just like with forever 21 as more inventories are prone to get outdated if some trend change shifts fast and the company is unable to figure a way out. So being ‘Too big’ is a problem in brick and motor fashion industry.
Some of the major reasons that ousted the company to go bankrupt are:
1) E-Commerce Disruption in the Industry- E-commerce business model has been a game changer for the retail businesses not just in terms of opportunity but also as a threat to many others. There has been a major change in customer buying habits since the coming of online retail stores, luring more and more customers towards the ease of online purchases. Additionally, the cheap accessibility of internet has added huge customer base for online players. Hence companies like Forever-21 due to their underdeveloped online space relative to its peers (like Amazon), reduced footfall in brick & mortar stores, inability to adapt to the changing business models in the retail industry led to its downfall. Forever 21 launched its online shop portal which makes up to just 16% of its sales.
2) Massive Expansion Strategy- The chain saw its biggest boom in the 2000s, when it started offering latest styles for bargain prices. It bet big on the mall-based business model, going for bigger and better store footprints with nearly 800 stores. Aggressively expanding operations by spreading its presence to new geographies.
3) High Debt Burden and Interest Cost- Opening new outlets in malls and other strategically fit locations to attract more customers and increase the footfall backfired as it incurred high rental costs, employee costs, tax charges, maintenance cost and other overheads. Inability to achieve sales target and attract high customers handicapped the company. The average size of a Forever 21 store is 38,000 square feet while the largest of 162,000 square feet. With the ongoing location rates in the market, such big retail stores costs huge rents.
4) Competitive Industry- With new business models like e-commerce, advanced supply chains etc. the entry barriers to the industry have fallen. This has given opportunities to many players to enter and shake the customer loyalty of existing brands further raising the competition war. Offering new, better and cost effective products have made a variety of options available to the consumers. Inability to face the competition has led to question the survival of Forever-21.
The Current situation of competitors of Forever 21 are-
1. H&M and Zara all have pitted for the same consumer base that wants trendy clothing at an affordable pricing. H&M share price has fallen nearly half from March 2015 top.
2. Popular London-based ecommerce brands like ASOS and Pretty Little Thing have also taken a swipe at profits with their lucrative celebrity collaborations.
3. The Instagram famous brands like Los Angeles-based Fashion Nova have also given Forever 21 a run for its money.
The fashion retailer will cease operations in 40 countries and close around 178 stores in USA and 350 stores globally. The company is now focusing on global restructuring by shrinking its operation and the executive vice president says “What we’re hoping to do with this process is just to simplify things so we can get back to doing what we do best”. However, the brand will continue to operate its online website and some stores in USA.
Let us recall from the past some big brands falling out of the competition. To name a few like Sears, Diesel USA, Payless, Bon-Ton, Kiko USA, Mattress Firm, The Mobile Store, Aeropostale, Nine West etc., and the list goes on. But what’s the catch? Why is this happening with such a consistency? There is nothing new with these retailers as well. The story of bankruptcy follows similarly with them as it has for ‘Forever-21’.
As we have observed from over hundreds of years of history, evolution and adaption to the change is the key to survival. The examples above only direct us towards one thing, which is, change is the new king. With technology dominating the world economy, change has become inevitable. So the question is who is next in line to become prey to this wave of ‘Retail Apocalypse’.