Retail Management 12th Edition by Barry Berman ,Joel Evans

Exercise 21

Case 4: Cheap Chic from Forever 21
Forever 21 (www.forever21.com) is a retailer that operates various store brands. It generates $3 billion a year in sales, has more than 480 stores, and employs 35,000 people. Forever 21 has grown so quickly that it opened 100 stores in 2010; and during one two-week period in 2011, Forever 21 opened three stores. In the past several years, Forever 21 has increased its square footage of store space from 1 million square feet to 10 million square feet, and from one private-label brand to six such brands. Even with this expansion, Forever 21 has been profitable. Its overall growth has been accomplished with no advertising, almost no marketing effort, and infrequent efforts of the chain's management to introduce themselves to their customers.
Early in their career as merchants, Do Won and Jin Sook Chang, the founders of Forever 21, began to order only small quantities of each style they offered for sale. To reduce their inventory risk and minimize markdowns, they planned to quickly reorder fast-selling clothing and discontinue styles that did not sell well. According to one research analyst: "A typical Forever 21 has inventory turnover of 20 percent per week, about two times the level of apparel manufacturers."
Forever 21 has been quick to capitalize on location opportunities generated by store closings and bankruptcies of other retailers. These include locations that were abandoned by Sears, Saks, Circuit City, Dillards, and Mervyn's. In addition, Forever 21 has locations on Fifth Avenue in New York City, on London's Oxford Street, and in Tokyo's Shibuya district.
Forever 21's growth has not been controversy-free. Even though the owners of the chain have never been found guilty of copyright infringement in court, between 2006 and 2010, about 50 designer brands-including Diane von Furstenberg, Anna Sui, and Anthropologie-individually sued Forever 21. While U.S. copyright law protects original prints and graphics (as opposed to the design itself), these three firms won out-of-court settlements against Forever 21 (the results of this litigation are confidential).
In commenting on the Anthropologie case, a U.S. District Court judge said: "We note the extraordinary litigating history of this company, which raises the most serious questions as to whether it is a business that is predicated in large measure on the systematic infringement of competitors' intellectual property." Similarly, a copyright law expert stated: "Illegal copying has been incorporated into their business model. But it's not necessarily a terrible result for designers who do receive payment."
Another designer who received payment from Forever 21 was Virginia Johnson. The original Johnson skirt was sold for $175; Forever 21's clone was priced at less than $18. In this instance, Forever 21 paid $9,000 (22.5 percent of sales) for a licensing agreement.
Another criticism of Forever 21 involves its history of using suppliers that underpay their workers. As one attorney who successfully sued Forever 21 concluded: "Forever 21 is not a victim of the industry. They create and demand these conditions. They squeeze their suppliers and make it necessary for them to get things done as quickly and as cheaply as possible, no matter what the cost to the workers."
Questions
1. Comment on the statement that Forever 21 "began to order only small quantities of each style offered for sale. They figured that they could quickly reorder fast selling clothing and drop styles that did not sell well to minimize their inventory risk."
2. Legal issues aside, evaluate Forever 21's strategy of making low-cost versions of successful designs by famous designers.
3. What do you recommend that Forever 21 should do in the future to avoid the controversies cited in this case
4. From a merchandising perspective, what are the pros and cons of Forever 21's fast-growth strategy