The Fashion Retail Competition Should Be Terrified Of Forever 21

The Competition Should Be Terrified Of Forever 21

Kim Bhasin | Mar. 11, 2013, 1:31 PM | 3,529 | 4

Forever 21 is growing like crazy, and the fast fashion retailer is becoming a major threat to the rest of the industry.

Analysts Lorraine Hutchinson, Paul Alexander, and Jessica A. Lebo at Bank of America warned that competitors need to start paying attention to the privately-held retailer right now.

They declared Forever 21 “the most transformative retail concept” in a note to clients.

“Forever 21 is becoming too big for the specialty retailers to ignore,” the analysts wrote. “At this size, rapid growth could have ripple effects on the other retailers as Forever 21 takes more share.”

Back in 2008, Forever 21 SVP Christopher Lee told the Los Angeles Times that the company’s goal is to become a “global retail conglomerate.”

And it’s well on its way.

Forever 21 has expanded to more than 450 stores in the U.S. and nearly 100 locations internationally. It charged into Europeput its foot into China, and now has its sights on Latin America. Bank of America estimates the company’s sales at upwards of $3.5 billion — in line with many big teen retailers.

The big players in teen retail, like Abercrombie & Fitch, Aeropostale, and American Eagle, will feel the pressure. Gap has also been squeezed by Forever 21, as it sees revenues and margins getting eaten away, according to ACM Partners’ Margaret Bogenrief.

Why should they be worried?

Forever 21 is faster and cheaper — It uses the fast fashion model, getting new fashion trends to stores as quickly as it possibly can, then selling at a low price. Traditional retailers try to establish a brand with a signature look, so it’s very unlikely that others will try to copy Forever 21 after spending so much time and effort building their own brands.

And it simply sells clothing for less than its rivals do. “Forever 21 sells jeans for as low as $15, where teen retailers generally start at $30 for this important category,” noted the Bank of America analysts.

Forever 21 is expanding its customer base  Forever 21 is becoming a fashion department store that caters to all members of the family — not just teens.

That means a broader set of customers are being gobbled up by the retailer as it releases new lines targeting men and older demographics. Yet, at its core, Forever 21 still has a similar target as the big teen retailers – 18- to 24-year-olds.

Forever 21 is fighting its competitors head-on — The retailer used to settle for second-tier malls and mediocre space in the big malls. But now, Forever 21 is done being timid.

“We have seen Forever 21 take on much better located spaces and often larger sized stores,” wrote the analysts. It even has a Times Square flagship directly across the street from both Aeropostale and American Eagle.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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