Forever 21 files for bankruptcy. Is Amazon to Blame?

Forever 21 files for bankruptcy. Is Amazon to Blame?

Mall staple Forever 21 has filed for Chapter 11 bankruptcy protection. It plans to close 178 of its more than 800 stores (although it may close more). The company also said that it does not plan to exit any major markets in the US.

Nowadays, when a retailer falls on hard times the first thing people say is, “Oh, yeah, Amazon killed them.” People then go on to opine that consumer behaviors have changed, and that people don’t shop the way they used to. All of this is true, BTW, except it is not the whole story. Not at all.

Forever 21 is heavily debt financed and seriously overleveraged making the chain super-sensitive to any type of economic slowdown. Through the lens of hindsight, it’s easy to say that the company’s financial engineering strategy was flawed. But growing a retail business requires capital and that always means striking a balance.

Consumer purchasing behaviors have changed, (thanks Captain Obvious), but so have consumer expectations. Forever 21 worked hard to bring new merchandise into its stores on a weekly basis. Ironically, its “delight the customer with the latest and greatest” mindset may have compounded the chain’s problems.

In any trend-driven business you can move too fast. “I want something brand new and unique, just like my friend has on.” is a common, perfectly rational, shopper request. “I’ve never seen anything like that before.” is just as common when a consumer sees something so new they don’t know what it is or why they would want to own it.

Is there a workable business model for “hit-driven,” teen-oriented fashion retail? Of course there is. It requires a data-driven supply-chain tied to inventory and marketing combined with executives who understand how to turn that data into action. Can traditional teen-oriented retailers survive? Looking at the fates of Delia’s, American Apparel, Charlotte Russe, Aeropostale, Wet Seal, and now, Forever 21, one has to wonder.

Author’s note: This is not a sponsored post. I am the author of this article and it expresses my own opinions. I am not, nor is my company, receiving compensation for it.

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About Shelly Palmer

Shelly Palmer helps business leaders turn data into action. Named one of LinkedIn’s Top Voices in Technology, he is the host of "Think About This... with Shelly Palmer & Ross Martin" on the Westwood One Podcast Network. He covers tech and business for Fox 5 New York, writes a weekly column for Adweek, and is a regular commentator on CNN and CNBC. Follow @shellypalmer or visit shellypalmer.com or subscribe to our daily email http://ow.ly/WsHcb

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