Forever 21’s global woes sound alarm
● The bankruptcy of US fast-fashion retailer Forever 21 has sounded the alarm for bricksand-mortar retailers as shoppers increasingly ditch stores to shop online.
Shopping centre owners in SA which lease space to the retailer are now assessing the impact of the store closures.
This week, Forever 21, which owns 550 stores globally, filed for chapter 11 bankruptcy that will see it shutting 178 US stores and exiting Europe and Asia.
Its expansion in international markets, characterised by the opening of big stores, was viewed as far too rapid given increased rental costs and growth of online retail offerings. Forever 21 stores typically occupy huge floor space. On average its stores are as big as 3,530m². The largest is 15,050m².
The company said it would use the bankruptcy process to restructure its global business to reposition the brand. It has since secured $275m (R4.1bn) from JPMorgan Chase, and capital from TPG Sixth Street Partners and other funds to the tune of $75m, Forever 21 said in a statement.
In SA, property firms have been in talks with licensees of Forever 21’s four outlets.
Property group Liberty Two Degrees, which owns Nelson Mandela Square where a Forever 21 store is located, said it is still assessing the impact of the global closures. The Sandton store is open and trading as normal.
The store, which is just over 2,000m², “represents 0.27% of total portfolio GLA [gross lettable area, the measure of rentable space in a commercial building] and 0.40% of total portfolio gross rental”, the property company said.
Forever 21’s first store in SA, which was opened in 2014, was the 1,337m² outlet in Hyprop’s Canal Walk in Cape Town. Hyprop, whose licensee for the store is from Dubai, indicated it would weather any local fallout from the bankruptcy proceedings in the US.
“As the tenant is in a prime position in the mall, should it become available we believe we would relet it quickly,” said Hyprop.
“We have had a number of tenants [on the back of the reports around Forever 21] indicate their willingness to conclude a deal in the event the space does become available.”
Euromonitor International beauty and fashion analysts Nina Marston and Irina Ivanilova said the retailer, once popular among teens and young adults, has struggled to maintain its appeal. They said the bankruptcy is symptomatic of the US fashion retailer’s difficulty in adapting “to the new way young consumers shop for fashion”.
A lifestyle survey by Euromonitor indicated that 29% of US consumers under the age of 29 regularly buy clothing and footwear via smartphone, and 35% are said to research fashion items online before buying.
Forever 21’s competitors Zara and H&M have made hefty online investments that are starting to pay off. As part of the e-commerce strategy adopted by Inditex, which owns Zara, it plans to implement digital elements in its stores that will create a compelling instore experience for its shoppers.
Charles Allen, an analyst at Bloomberg Intelligence, said Forever 21’s troubles were compounded by poor location choices.
He said it was typical of retailers to slow down expansion as e-commerce becomes more prevalent. “People only really go shopping in attractive stores. So if you are represented in poor shopping malls, then it’s quite likely that your sales will suffer,” said Allen.
“There are retailers that are continuing to add space on a global basis, but I think on a country-by-country basis there are not many retailers adding space in countries in which they have a big presence. Many of them are consolidating and reducing space.”
Not all international retailers have had the success of H&M, Zara and Cotton On, which brought tough competition for local players. Foreign retailers that have ceased operating in SA include Mango Clothing, which used to have standalone store, as well as Nine West. British retailer River Island exited SA in 2017 after a mere three years in the country.