Failure Of Supply Chain Forever21 Bankruptcy

I. Preface

In the wake of the "retail doomsday" and the continued warming of e-commerce in the global market, Forever21, the fast fashion cheap retailer, formally declared bankruptcy in the evening of September 29, 2019. Freezing is not a cold day. Forever21, once popular around the world, has long been in deep mire. In 2016, Forever21 announced its withdrawal from the Belgian market, which is like the first Domino to fall, and then triggered a chain reaction. Forever21 has withdrawn from Europe and America and Asia. Forever21 is not the first clothing brand to experience such a fate. Naturally, it will not be the last one. The reason for its going to the end is worth exploring.

Two, brand introduction

Forever21 is a popular clothing consumer brand in the United States and is headquartered in Los Angeles, California. The founder is Zhang Dongwen, a Korean American. It is famous for its approachable prices, mainly for the low-end market. Its target customers are mainly 20 year old ~30 years old urban vitality crowd and fashion enthusiasts of American teenagers. In addition, Forever21's brand segmentation involves almost all the product areas of the fashion industry.

Three, Forever21 supply chain management mode.

Like GAP, ZARA and other brands, Forever21 also adopts SPA (SpecialtyretailerofPrivatelabelApparel), which is the professional retailer business mode of clothing brand. It refers to the vertical sales mode integrated from material reserve, planning, product development, manufacturing, logistics, sales, commodity management, store planning, etc.

Raw material procurement and manufacturing

Forever21's raw material procurement and production are mainly concentrated in the third world, such as Vietnam, Indonesia and India. Forever21 adopts the privatelabelgoods&othersupplier mode, that is, by selecting close to different suppliers to produce products. Suppliers close to the market produce seasonal popular products, while those away from the market produce cheap core products.

　 Logistics transportation

Starting in 2015, Forever21 hired EZWorldwideExpress as its specialized carrier, which serves a total of 171 stores. The courier will airpack the package to the international destination, and the customs clearance team will clear the customs. The pre clearance system of the company will send the copies of the shipment details to the foreign customs clearance team before the package arrives at the destination country, so that the clearance team can be prepared to accept the goods ahead of schedule.

In terms of logistics services, Forever21 chooses the best delivery company after consultation with its operators, and adopts a full 200 free shipping strategy in China. In Japan and other high freight countries, it reduces its cost by reducing its return rate.

Retail terminal

Forever21 retail terminal stores are located in the central part of the city and cover a large area. For example, the area of flagship store in Times Square reached 8400 square meters. In addition, store decoration uses gold and pink color to attract people and stimulate consumption.

As the most important form of the SPA mode in the consumer terminal, the Forever21 does not adopt the general way of placing the demand for promotion, instead of placing it in the form of product classification. On the basis of this, it advocates one-stop shopping.

Four. Reasons for supply chain management

Along with the content and logic of the above part, we will also analyze the reasons why Forever21 is no longer brilliant from three aspects of supply chain management.

　 Product design and manufacturing

1. invalid cooperation supervision and information feedback.

The Forever21 design is based on the third party business, while the Losangeles headquarters is responsible for the verification of product design samples from various countries. The reason why Forever21's product design can not keep up with the trend is that the headquarters and the third party's supervision and coordination have serious problems and lack of information sharing and communication.

On the one hand, in order to attract attention, Forever21 has designed many products which are speechless, such as the new usup series and the hotCheetos series's single products are not suitable for consumers' appetite. At the same time, a series of lawsuits caused by the imitation and plagiarism of clothing styles have caused some pressure on them.

On the other hand, Spa's high SKU mode, which designs and manufactures products in weeks, requires a large amount of consumption data from the terminal to be fed back to the production design side. However, Forever21 is not very good at information feedback. The digital settings of its terminal stores are not mature, resulting in the dynamic data of their stores, including three pieces of data of users, commodities and logistics, which can not be effectively collected, analyzed and transmitted.

2. lack of product quality management

The production process of Forever21 products is carried out under the "low supervision" mode. The quality of its products is controlled by third party factories, and clothing production is fast and numerous, which makes the quality not guaranteed. In addition, Forever21 did not observe the escalation of their target customers' consumption, and still insisted on the cheap and low quality route, which made it not only attract more new customers, but also lost contact with the target core customers.

3. unsustainable low price supply chain upstream

Looking back at the upstream supply chain, Forever21's cheap route has made its supply chain more expensive to be kidnapped by low prices. Upstream suppliers unscrupulously reduce costs, which brings about the exploitation of manufacturing workers, environmental pollution and waste of resources, and Forever21 is under tremendous pressure from public opinion. Although this is a common problem faced by today's fast fashion brands, its competitors maintain a leading position as value drivers in fast fashion brands within the context of sustainable development, and are better than Forever21 in the game as a moral participant.

　 2. Logistics transportation and warehouse management

1. shallow stock brand logistics pressure and exclusive carrier's exit

As a shallow stock brand, Forever21 undertook a high delivery fee in its after-sales service. Based on the control cost, there are two reasons for brand maintenance. Forever21 selects a better courier company, and pays the express fee for the customers, but at the same time, it also increases the logistics cost. In addition, the turnover of Forever21 did not improve at the end of 2015. The EZ of its exclusive carrier cancelled the contract in January of last year, which directly exacerbated the logistics pressure of its 171 stores and reduced the efficiency of the supply chain.

2. improper management of safety stock of explosive charge

Forever21 has set up more than two thousand kinds of merchandise in the store, which seems to meet the needs of most consumers. But in fact, its popularity of high explosive products is only 20, plus Forever21's shallow warehouse stock management mode, its explosive products will soon be out of stock, which means that Forever21 has lost many customers who only buy explosive money. Secondly, the average turnover rate of stores is not high, which is not a good phenomenon for a store with high rent status.

　 3, retail terminal

1. online channels: the breadth and depth of online channels can not keep pace with today's network effects.

(1) breadth

Starting from the breadth of online channels, we can see from its distribution of traffic sources that most of the online traffic of Forever21 comes from the traditional way -- Google browser, while Facebook and YouTube are relatively few of the mainstream platforms nowadays. This shows that online marketing and publicity, Forever21 has a big room for growth. Forever21's brand positioning is 18~25 year old young people, then we should work harder on the platform of some young people, and strive for more position and attention in the era of information explosion.

In addition, we can clearly see that its user conversion rate is very low. 100% of the visits will only have a 2.9% conversion rate, equivalent to 100 customers who may have only 3 customers who are Forever21 consumers. A network search source failed to achieve a significant conversion rate, which means that Forever21 online marketing is very inadequate.

(2) depth

The lack of deep mining of Forever21 online channels is mainly reflected in social media Instagram. By the end of November 2019, Forever21's fans on IG had exceeded 16 million, which means that Forever21 actually had a large group of potential customers. However, Forever21 does not make good use of the influence of "influencer" on contemporary young people. It is only limited to the traditional mode of sending pictures and text, and has little interaction with fans. As time passes, its user viscosity and favorable degree also drop greatly. On the contrary, Forever21's competitors such as FashionNova, ASOS and Missguided use "influencer" to precisely target the target audience and develop positive social and marketing activities.

2. line next store

(1) the "gold price" accompanied by the "golden lots" makes the fixed cost too high.

Most of the Forever21 terminal stores are located in the bustling areas of the city, and the stores are large and wide. However, the gold price matching has always been the "gold price". The high rental cost does not allow Forever21 enough cash flow to further expand the stores and invest enough funds in the new retail outlets. The location of Forever21's terminal retail stores has been dragged down by excessive fixed costs, and the high debt account has reduced Forever21 to bankruptcy.

(2) the distribution of terminal stores is uneven, unable to establish their own competitive advantage.

Forever21 has made the layout of the store globally, but from Figure 5, we can see clearly that except for 500 stores in the United States, Forever21 has a very small number of retail outlets in most countries. Overseas branches do not have a competitive advantage in the mainland, which makes Forever21's huge investment overseas nowhere.

As can be seen from Figure 6, the number of fast fashion brands opened in China in 2016 has formed three echelons. The largest number of shops in the Chinese market are UNIQLO and the following H&M, the two formed the leading echelon and have left other competitors far behind, while ZARA, GAP, C&A and UR have become the second tier companies. They have opened up more than 100 stores in China. The third echelons include NEWLOOK, MANGO and FOREVER21, which currently do not have a large number of shops in the Chinese market. Compared with other international fast fashion brands, they still do not have strong competitive strength in the Chinese market, and even have been taken away by the international fast fashion brands of the two tier before.

More importantly, Forever21 has a small number of stores in one country, and has no influence in the first tier cities, so it can not sink to the two or three tier cities, open up larger markets, and then fail to form product scale advantages from stores. Eventually, it will create some pressure on its overseas supply chain.

Five, fast fashion industry analysis

Taking the world's largest clothing market, the Chinese market as an example, from the data of new stores opened in the three quarter of 2017-2019 7, the number of seven fast fashion brands in the mainland has declined, and the overall expansion rate of the industry has slowed down significantly. Among them, the international fast fashion giant UNIQLO and ZARA are relatively stable, the former maintains more than 50, the latter has not yet exceeded 10; in the first three quarters of H&M2019, there were only 10 new stores, compared with last year, while the expansion of the two domestic brands UR and MJstyle was in a state of contraction.

Over the past few years, the fast fashion industry is closing in. The growth momentum of the retail channel of fast fashion brands has reached the ceiling, and the huge offline stores have become the burden. From table 1, the three fast sellers of the fast fashion industry discovered the number of open stores in the mainland in 2018, while UNIQLO, with its digital store layout, went against the trend and opened up 78 stores. The number of ZARA shops was -27 (Forever21), which was also affected by the fluctuation of exchange rate and real estate, as well as the rentals of physical retail stores, and the profitability of ZARA's Inditex group.

In addition, different sales strategies are seen from the shelf life of the seven fast fashion brands and their average inventory turnover days. The top two brands of China made the fast fashion industry on the 7 to 10 days of ultra high speed new products, but the average inventory time of 1 to 3 months slowed down a little. The three fast fashion brands performed normally, while GAP and C&A were inferior.

From China's business growth rate of 33.5%, we can see that the development of UNIQLO is still strong, and MJstyle, which has a business growth rate of 20%, has become a dark horse in the fast fashion industry in a relatively short period of time. The Zara open shop is -27 home, and its development speed is obviously slowing down, but its strategy is turning to online e-commerce, so the overall growth rate is 9.2%. GAP, C&A and other former giants are also not optimistic, and the market position is gradually weakening.

Generally speaking, the fast fashion industry is showing multipolar differentiation. The market performance of each fast fashion brand is different. UNIQLO and MJstyle are still in a better development. However, other fast fashion brands are slowing down or contracting, or facing the uncertain future development prospects. In the context of this fast fashion industry, the bankruptcy of Forever21 is a result of the survival of the fittest in the fast fashion industry. The fast moving fashion brand is still in a better development. But if other fast fashion brands do not learn from the Forever21, they will be eliminated. Therefore, we can conclude that the bankruptcy of Forever21 is actually a precursor to the fast fashion industry, but it does not depend entirely on the fast fashion industry, but more on its own development.

As more and more entrants enter, the importance of maintaining differentiation and continuous improvement is becoming more and more important. Seeking change and advancement are the basic directions of their future. Therefore, this article predicts that the situation of "survival of the fittest" will become more intense in the fast fashion industry in the future.

Six, conclusion

Forever21 can't keep up with the business wave and leave behind. But this failure is thought-provoking. Whether the cheap and low quality route can continue to let consumers buy it? Whether there is effective supply chain cooperation supervision and information feedback on the supply and downstream, how to control the rent rise of the store and the negative influence of the crowd on the line under the background of Real Estate Fluctuations and electricity supplier shocks? Under the pressure of huge industry, Forever21 is just a microcosm of fast fashion "survival of the fittest". How to maintain and develop its own supply chain advantages, constantly changing and changing is particularly important.

To be sure, Forever21 will not be the last player to be eliminated. There are still many fast fashion brands pushing ahead in the cold wind. The era is advancing and the industry is advancing. In the fast fashion field, what brands really need is a new life.