Forever 21’s fast-fashion concept fuels expansion
Most retailers are tapping the brakes as they navigate a rocky economy. Forever 21 Inc. has its pedal to the metal.
The fast-fashion retailer is expanding around the globe, increasing product lines and opening showy new stores. The largest yet, which at 90,000 square feet on three levels will be bigger than the size of the Rose Bowl playing field, is scheduled to open in Times Square next year. In South Korea, the birthplace of owners Don and Jin Sook Chang, Forever 21 is preparing to develop a mall adjacent to Inchon International Airport.
The Changs’ recipe: Create a niche, and then blow it out.
Having built a $1.8-billion business by focusing on trend-hungry, cost-conscious young women, privately held Forever 21 envisions its future as a comprehensive fashion department store chain, selling clothes and accessories for teens, women, men and children. The Los Angeles-based company has spent $47 million buying competitors -- Rampage and Gadzooks -- and has doubled its square footage over the last 2 1/2 years. The goal is to become a “global retail conglomerate,” said Christopher Lee, Forever 21’s senior vice president. “Where there’s a flash of opportunity, we’re stepping in.”
Don Chang, who pumped gas, washed dishes and cleaned offices after he and his wife arrived in the U.S. a quarter-century ago, has another way of putting it. “We are,” he said, the “American dream.”
Forever 21 is known in the industry for its knack for spotting what sells -- or what will sell -- getting it into stores quickly and replenishing merchandise to keep up with what’s hot. “Literally, you’ll see something on a runway, and they get it into the stores in the next month,” said Christine Chen, an analyst at Needham & Co. in San Francisco. “It’s really unbelievable.”
Critics have claimed it’s something else. Forever 21 said it was working to settle what’s left of a couple dozen copyright- and trademark-infringement lawsuits, and the company was embroiled earlier in the decade in a legal battle with employees of Forever 21 subcontractors who claimed they worked six days a week, sometimes 12 hours a day, for far less than the minimum wage. The matter was settled out of court and the company, which admitted no wrongdoing, agreed to take steps to ensure that its garments were not made in sweatshops.
Sales, meanwhile, continued to climb. The company has forecasted revenue of $1.8 billion this year, up from $1.3 billion in 2007. And for 2009? The projection is $2.5 billion.
Along with European competitors H&M; and Zara, Forever 21 created the inexpensive fast-fashion concept, spurring other apparel sellers to pick up the pace.
“They run lean and mean,” said Debra Stevenson, president of Skyline Studios, a consulting firm in Los Angeles. “They have a lot of young people working for them, and they do understand their culture.”
Chief Executive Don Chang has been working to understand shoppers since 1984, when he opened the first store in Highland Park. Business was slow, which helped him shape a strategy.
“The customer’s always looking for the price,” he said. If a purse didn’t open, Chang asked questions. What’s wrong? The fit? The fabric? “What kind of clothes do you want? I’ll bring it for you.”
Ilse Metchek, executive director of the California Fashion Assn., remembers her first visit to one of the early stores, a “hole in the wall” jammed with merchandise. “They had no talent for display, none,” said Metchek, who called a couple of manufacturers and suggested they come have a look. “They said, ‘My God, he’s selling at retail for less than we could have made it at wholesale.’ ”
And Forever 21’s styles were “right on,” Metchek said. Jin Chang, a former hairdresser who is now chief merchandise officer, had an eye for fashion that the company was willing to bet on.
While their business was growing, the Changs, who are in their 50s, were making a mark in other ways. With a partner, they built the four-story Oxford Palace Hotel in Los Angeles’ Koreatown and co-developed the San Pedro Wholesale Mart in downtown’s Fashion District. It was the city’s first commercial condominium project and built when most people “didn’t believe in downtown,” said Kent Smith, executive director of the L.A. Fashion District Business Improvement District.
Anyone who has looked at the bottom of a Forever 21 shopping bag has a hint about another important aspect of the Changs’ life. Each bag is inscribed with “John 3:16" -- the New Testament passage that says, “For God so loved the world, that he gave his only begotten Son, that whosoever believeth in him shall not perish, but have everlasting life.”
The inscription is “evidence of their faith and their commitment to God,” Senior Vice President Larry Myer said.
The Changs have given millions of dollars to the Ttokamsa Mission Church in Los Angeles, where they attend the 5:30 a.m. prayer meetings Monday through Saturday when they’re in town, Pastor Ken Choe said. “They are prayer warriors.”
The church is part of the Christian Reformed Church of North America and directs more than 70% of its budget for overseas missions. Jin Chang has visited China, the Ukraine and the Philippines to serve meals to missionaries and local pastors, Choe said.
Don Chang teaches at the church and, Choe said, has a “zeal for the Lord” that the preacher sometimes envies. “It’s very rare,” Choe said. “That’s why I believe God has poured his blessing on him.”
The church has helped build schools in China, Afghanistan, Cambodia, Vietnam and the Philippines, and Chang gave $3.4 million to build an auditorium at Faith Academy in Manila, a school for children of missionaries.
The Changs’ business is looking toward Asia as well. Forever 21 plans to open its first store in Seoul this year and hopes to develop more than five malls in South Korea and elsewhere in Asia. The first store in China opened this month near Shanghai and more are expected in that country over the next year. Forever 21 will debut in Thailand this year and open in Japan over the next two years.
Once the company has its “global infrastructure” in place, Senior Vice President Lee said, it may go public. But not now, Chang said. “If a company wants to grow, I think private is much better,” he said.
If the retailer files an initial public stock offering, there should be no shortage of interest, said Frederick Schmitt, a principal at Sage Group investment bank in Los Angeles. Financial institutions and private equity firms have hovered in recent years, “waiting for them to go public, or trying to buy them,” he said.
“It’s sizable, it’s growing, it’s seen as a good operator and they’re understood to be very profitable, so that makes it an attractive acquisition target,” Schmitt said. Shoppers, and investors, are fickle, of course, and trends constantly change. But although “everybody’s saying the economy’s bad,” Chang said, “we’re doing better. We are strong.”