Forever21 takes a tumble on fashion street
Eight years and three partnerships later the American fast-fashion retailer runs into a fresh hurdle. Where has it gone wrong?
Early this week Aditya Birla Fashion and Retail (ABFRL) announced that it was downsizing Forever21. “Assumptions have changed for the Forever21 business,” Ashish Dikshit, managing director of ABFRL’s Madura Lifestyle business, said in an investor call. Store resizing and a new store model would need to be in place for the brand he added. For the American retail brand that entered the country around the same time as Zara (2010) and way before H&M (2015), this is yet another roadblock in a journey that has taken it through three partners and several setbacks. What is the problem? Inefficient inventory management and a failure to understand the price-value equation, say analysts.
This is not the first time that the fate of Forever21 hangs in balance, nor is India the only county where the brand is under siege. The company is fighting financial and legal battles in various countries and in India, it has seen its partnerships come apart and failed to keep pace with the market.
Forever21 entered the country in 2010 with the Dubaibased Sharaf Group’s retail venture. However the store shut down soon and in 2013, the retailer tied up with DLF Brands. Speaking to the media at the time, the company had said that it wanted to open 35
stores in five years in India. But the partnership soon ran out of steam. And in 2016, ABFRL stepped in.
The Birla Group bought the offline and online rights to the brand and said that it wanted to build the brand as a large independent business. It was a grand alliance, which tied in with the American retailer’s plans, to be the largest women’s wear brand in the country. However, the partnership seems to be under pressure yet again.
“Inventory management is difficult in Forever21. They send a lot of slow movers and it becomes difficult to clear left overs,” says Deepak Agarwal, former CEO of DLF Brands. Having worked with the brand closely he says that there are operational issues holding it back. Unlike Zara and H&M, the business is not organised. Globally too the retailer faces similar criticism. According to several analysts’ reports, the American retailer has grown too fast, trying to scale up from a single Los Angeles store to over 700 in too short a time.
For ABFRL, the brand was
meant to lead its foray into fast fashion for women, one of the fastest growing segments in the country. However it has said the ~23 crore losses in fast fashion in 2016-17 were mostly because of Forever21. Of this, Dikshit told analysts, about ~1516 crore is a one-time inventory markdown after rationalising the business.
According to Abneesh Roy, senior vice president at Edelweiss Securities, the brand appears to have been hit by the number of times it has changed hands in India. “A new promoter may make strategic changes and align the acquired entity to the culture and goals of his own company. This may impact business over the medium term. But compared to Forever21, Zara and H&M seem to have executed the business better over the past few years,” Roy said.
The other problem is that Forever21 has not understood its category well. “It may be offering 15 to 20 per cent lower prices, but customer also looks for price-value equations, assortment, brands and so on,” he says.
ABFRL has reduced the sizes of Forever21’s older stores and will now focus on opening new but smaller ones. Dikshit also said that many of these stores were inherited from previous partners (DLF Brands and Diana Retail), indicating perhaps that the current management was not to be held responsible for the downhill slide. “Our internal assumptions for growth were very high in this business, but we realised that we had built up a lot of inventory and needed to know what to do,” Dikshit added.
But while Forever21 has struggled, a newer entrant H&M has flourished. H&M India posted an 87 per cent growth in sales for the period December 1, 2016 to November 30, 2017, sales revenue worth ~9.36 billion in 2016-17 compared to ~4.84 billion in 2015-16. It has 29 stores and has said it would open 50 stores with an investment of ~7 billion by 2020.
Many say that the entry of H&M has hastened the decline of Forever21. Jaydeep Shetty, CEO of fashion chain Mineral says that the problem may be that Forever21 targets a very narrow band of customers. Both H&M and Zara cater to customers between 16 and 40 years but Forever21 caters to age group of 12-22 years. “The age group is difficult to cater to as their thinking is different. Besides, other fast fashion chains offer much better quality,” Shetty adds.