Forever 21 Is Redefining Retail

It’s been a while since Dr. Kris has ventured into the mall and boy, oh, boy have things changed! Stores that used to be teeming with weekend fashionistas are now all but deserted. Except for one which has been stealing its competitors’ consumers: Forever 21, aka F21. And that store is up to its third-story eyeballs in clad-happy consumers grabbing handfuls of tees in differing hues from white lacquered tables marked: Camis: $2.50.

Standing in the long lines for the dressing rooms (where you’re allowed to try on well over the maximum six articles as long as you promise to hang everything back up) are not only teenagers, but their mothers AND their grandmothers. The checkout lines are just as long but it’s not as bad as it sounds because for some reason, all of the lines move very quickly, just like the merchandise.

In fact, it moves so fast that you can shop the same store once a week and see a completely new selection of merchandise. Now that’s exciting! But that’s far from being the only thing that this company is doing right. Here’s the short list:

1. Their stores are big, bright, colorful, and inviting. Just down the street, the Abercrombie & Fitch (ANF) store is anything but. This place is so dark and cavernous that one needs night-vision goggles to avoid tripping over sales associates and clothing racks. Also, is it too much to ask to turn down the volume? Playing techno-junk at 150 decibels does not make it sound better. Needless to say, I didn’t get very far into the store before I turned around and hurried out. And I wasn’t the only one heading for the exit sans shopping bag. This company seems intent on keeping customers out, and the fact that its stock price is trading at a 68% discount from previous 2007 highs reflects that. (Yes, all retail is down, but compare ANF with Urban Outfitters (URBN) which is only off 44%.) ANF also made a repeat appearance in this year’s MSN Money’s survey, The Customer Service Hall of Shame as being particularly irksome. I can’t imagine why.

2. F21’s clothes are not only on the cutting edge of fashion, but are very inexpensive and well-constructed considering the price. Most tee shirts retail for between $2-$8; leggings start at $4.50; dresses start at $8 with the majority priced under $30; shoes are also under $30; and fun bling can be had for the price of a frappuccino. In fact, I’ve been complimented many times on a double-stranded necklace of faux jet beads that I picked up for just $7.80. (You can check out their wares on the F21 website.)

Now much has been made of F21’s practice of attending fashion shows, knocking off select pieces, and shipping them to their stores sometimes faster than the original designer is able to do. But the company is smart enough to change the style just enough to avoid copyright infringement, at least so far. (It’s been involved in a string of lawsuits.)

One store in particular that has felt the sting of being knocked off by F21 (and has sued them for it) is Bebe (BEBE). On my last retail safari, I walked into the Bebe store that is right next to F21 and it, like ANF, was deserted. What was once my favorite store now looked slightly dated, both in fashion and in floor plan. The contagious excitement of its next door neighbor was nonexistent here. This sad state of affairs is reflected in its stock chart:

Bebe has fallen almost 75% since 2007 and is not looking good at the moment. They need to get with the new fashion program or else they might find themselves going the way of the buggy whip.

3. F21 seems to listen to the needs of its customers. Realizing that while a woman’s mind might be in the forever 21 mode, her body may have other ideas, especially the ladies who haven’t seen 21 candles on their birthday cakes since the Carter administration. Sensing a need for high fashion for the BBW (big, beautiful woman), F21 is preparing to launch a plus-sized line. I’m betting that will be a huge success (no pun intended). I can’t think of any other stores outside of Wal-Mart (WMT), Target (TGT), and stores specifically catering to this group who even acknowledge that plus-sized people might want something fashion forward, too.

Other competitors

F21 isn’t the only retailer employing this fast and frugal fashion approach. Charlotte Russe (CHIC) and Swedish-based H&M (HNNMY.PK) both follow similar models with H&M’s probably being the closest to the F21 paradigm. Since F21 is privately held (boo!), we can’t get a look at its books, but if H&M is any indication, it’s probably doing great. H&M reported strong profits for the fourth quarter of 2008 and plans to open 255 new stores mostly in Europe and the US which will add around 7000 employees to its payroll in 2009.

It’s unfortunate that F21 isn’t publicly traded because I’d certainly be adding its stock to my equity wardrobe. I might as well get some sort of return on my investment! In the meantime, I do think that clothiers should take notice of this tornado ripping through retail for it seems to be sucking the life out of everything in its path.

Comments

[David Nehme...:]

Daily FACTS of life as a Physician /Surgeon that could be lumped under the title "" SHOULD I CARE"" or ""YOU DESERVE WHAT YOU GET""
Patients streaming through the Emergency rooms in Local medical Facilities with major medical problems that had been referred to nearby Medical / University Hospitals years ago for treatment of a major diseases but because of "" NO INSURANCE "" were refused care by the big university hospitals and now those patient are dying from their illness

Jun 18 08:34 AM

[Padhante:]

I am just curious to know how much Forever 21 paid you to write a positive piece like this. Hope it's enough to buy new glasses which you seem to desperately need. The current ones nullify your sheer blonde hotness and you don't even realize it.

Jun 18 09:08 AM

[RWCMom:]

Women have an overall better record of stock picking and Dr. Kris is one good example. She actually knows something about the product and observes, first hand, how the revenue stream is working (rather than reading the self serving press pieces from many companies).

She operates like I do. Watches for successful, well run businesses and researches them further. Hitting a brick wall and discovering that a successful company is privately held in not unusual; I've hit that roadblock many times. She took the next step and started looking at the competition for possible investment opportunities.

I like the current snapshot of the women's retail market that she presented and if I were investing in retail would be very happy with that information and would use it as a standard against which to judge other similar companies. Women tend to buy stocks what they can see, feel, touch and understand. That also gives them a second sense for when to pull out.

Jun 18 10:14 AM

[Aaron Epstein:]

Forever 21 is charging prices way below that of their competitors. The first question the reporters and customers should ask, therefore, is what are the working conditions and wages in the factories where their goods are made? Companies such as Target, Gap, Walmart have worker welfare vendor standards and inspectors that visit factories to verify that standards are maintained. What does Forever 21 have in place. Buying mdse made under sub poverty level conditions is NO BARGAIN. Aaron Epstein, N. Hollywood, CA

Jun 18 12:01 PM

[TheCaptain:]

This is old news if you follow retail. Fast fashion has been around for a good few years and for teens or any other woman who is a shopper, fast fashion is no longer a novelty. There are so many places to buy "cheap" clothing/accessories. Whether or not I agree with what was written, this would have been of value (which is debatable) 2-3 years ago. You can't get ahead in retail if you are too late on the trends.

Jun 18 12:16 PM

[j_remington:]

F21 carries lesser quality clothing, similar to Old Navy quality.

Jul 09 11:24 AM