Forever 21’s downfall cannot be attributed to a single factor. Yet, the once iconic fast fashion retailer pointedly singled out the rise of the likes of Shein and Temu as a key driver behind its second bankruptcy.
If you ask experts, however, the company’s demise isn’t a story of a sole misstep, but rather a series of interconnected failures, which, while including rising competition, also stemmed from an inability to adapt to the quick changing economic environment, trend cycles, and consumer shopping patterns.
The retailer, which will be closing all 350 of its stores in the US, had faced eerily similar woes during its first bankruptcy in 2019: overexpansion without a well thought-out strategy, an inability to keep up with digital trends, declining product appeal, and overall concerns around sustainability.
But instead of addressing its core problems, modernizing operations, or significantly improving its e-commerce presence like its competitors Zara and H&M, it simply downsized and, well…hoped for the best.
“In the case of Forever 21, the reasons given by management were all known at the time of their first bankruptcy,” Greg Portell, senior partner and global markets lead at Kearney, told Retail Brew via email. “Forever 21 either failed to recognize those threats or failed to address them when they had bankruptcy protection. In the end, any company should expect competition and can benefit from working to anticipate those moves.”
Cue the sequel: Denise Green, director of graduate studies in Cornell University’s fiber science and apparel design program, pointed to the significant struggles the retailer had on the sustainability front—a mounting concern that has put all fast fashion brands under scrutiny.
While retailers like Zara and H&M have focused on increasing awareness around their sustainability efforts, however flawed, Forever 21 seemed to have paid very little heed to its low-cost, disposable model. It doesn’t help that mid-priced brands such as Reformation and Everlane also gained traction at the same time by offering more ethically produced alternatives.
“As consumer awareness about the environmental impact of fast fashion grew, Forever 21 struggled to align its business model with a more sustainable, ethical approach,” Green said via email. “The company’s overexpansion and inefficient supply chain further exacerbated its financial woes.”
Ironically, Shein and Temu have faced even greater scrutiny over their ethics and sustainability practices, yet that hasn’t deterred their loyal customer base from the vast selection of ultra-cheap offerings on both platforms.
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“Retailers like Shein and Temu pose a significant threat because of their more agile supply chains, which enable rapid response to consumer trends and their shifting preferences,” Green said. “Competing against them requires a multifaceted approach: investing in technology to equalize supply chain agility, prioritizing sustainability, and enhancing brand loyalty through storytelling and personalization.”
Sam Vise, CEO of Optimum Retailing, an AI-supported retail intelligence platform, offers an alternate point of view. While acknowledging that Shein and Temu pose a real threat to fast fashion brands, he said it’s not because of their “speed or low prices” but because of a unique understanding of their customer.
“Their ability to read demand signals in real time and respond with hyper-targeted, constantly changing product assortments has redefined consumers’ expectations of fast fashion,” he said via email. “But that doesn’t mean traditional fast fashion retailers are out of the game. The key is not to try and outprice Shein or Temu online; it’s to offer something they fundamentally can’t. When done right, brick-and-mortar stores create an emotionally resonant experience that can’t be replicated while scrolling on an app.”
Final word: Vise suggests the “real opportunity” to tackle the threat from the duo lies in combining the strengths of both digital and physical retail.
“The retailers that will thrive are the ones who view their physical footprint as a strategic advantage: a space where online meets offline, and where shoppers can see, feel, try, and immediately take home the products they’ve browsed digitally,” he said. “To stay competitive, traditional fast fashion brands need to reframe their stores not as distribution points, but as experience centers that are flexible, localized, and deeply in tune with the customer.”
If there’s one takeaway from Forever 21’s decline, it’s that survival in retail isn’t about sticking to what worked in the past, it’s about evolving.
For any retailer looking to learn from this second stumble, Portell believes it’s this: “If a retailer is going to seek bankruptcy protection or embark on a management-controlled restructuring, it is important to take the opportunity to fix the entirety of the problem.”