STICKING WITH FOREVER 21

Byline: Kristin Young

LOS ANGELES — The number 21 holds almost magical significance to Don Chang, the owner and chief executive officer of Forever 21.
“Twenty-one is a very lucky number in America and in Korea,” said the soft-spoken Chang, a native of Korea, in an exclusive interview with WWD — his first with an English-language publication.
His instincts about naming his company have proven to be right.
On April 21, 1984, Chang opened his first store, a 900-square-foot store on Figueroa Street in downtown he initially called Fashion 21, to serve a younger customer on a budget. The unit earned a staggering $700,000 in its first year.
Three years later, Chang changed the name to Forever 21 to better reflect his consumer base, opened a 5,000-square-foot store in Panorama Mall in Van Nuys, Calif., and has since built the portfolio to 92 units in malls from Southern California to Florida and reaching into the Northeast. Internationally, two stores are in Tokyo.
Today, the privately held company is a formidable player in the junior market — one that keeps the competition up at night, say some industry observers — and shows no signs of slowing down. The quiet giant with the low prices boasts stores with sales per square foot that rival some Rodeo Drive shops.
Its current expansion strategy will put an additional 35 to 40 stores in California, New York, Miami, Texas, Connecticut, New Jersey and Hawaii by year’s end. Other international markets are also being studied.
No doubt encouraged by Hennes & Mauritz’ success with 10 units the Swedish chain operates on the East Coast, Forever 21 is unveiling a new department store concept called Forever XXI, a larger venue catering to young women and men. The Beverly Center, a mall in the heart of West Hollywood, will be home to the first 25,000-square-foot store in August. Six more will follow later this year, but the company is mum on the locations.
The company’s sole owners are Chang and his wife — of 21 years — Jin Sook Chang, who is also Forever 21’s head buyer. But that’s likely to change as the company expands, and Chang said he had an IPO in the works.
This is a long way from Chang’s first days in Los Angeles, when he arrived from Korea with an $11,000 investment, an eye for trends, and a hunch that the crowds cruising Figueroa Street on any given day would buy his take on fashion.
In 2001, Forever 21 expects to record $400 million in sales, a figure Chang expects to double next year with additional revenues from Forever XXI. Same-store sales in 2000 were 20 percent higher than in 1999, he said.
Chang said he keeps prices about 2 percent lower than competitors, like Wet Seal and Charlotte Russe’s Rampage stores.
“It doesn’t sound like a lot but the customer thinks that’s a big difference” he said. “We put ourselves in the customer’s place. We essentially profit-share with her.”
As for his retailing technique, Chang is highly secretive about upcoming trends, fabrics, color stories and suppliers. The store doesn’t follow traditional retail methods and often doesn’t follow seasons, he said.
“I know what the customer wants,” said Chang. “If she wants a T-shirt in a small size in the color pink, I buy it for her, even in winter.”
The strategy seems to be working. Turnover is big enough to necessitate daily deliveries to restock an average 1,500 styles carried in each store.
The majority of Forever 21’s merchandise is private label and produced in Southern California, a factor that allows the company to turn around a hot trend quickly. Less than 5 percent of its manufacturers are located outside the U.S., in Asia and Mexico.
Lucky numbers aside, it’s a faithful work ethic lead by the Changs that keeps the company running. Both rise each morning at 5, visit their church and put in 14-hour days at the company’s headquarters in Vernon, Calif., about 15 minutes away from downtown.
When they’re not at work, Chang said the couple is often thinking about work, researching trends by shopping, scouring magazines, watching television or noticing what their daughters, ages 14 and 19, are wearing.
And just this year, the two took their first-ever trip to Europe. Again, it was work-related, to research stores for the new Forever XXI concept.
All this hasn’t gone unnoticed among mall developers, many whom are clamoring to get Forever 21 into their projects.
In an era of novelty mall stores that can resemble mini theme parks, it’s worth noting there’s little that’s distinctive about Forever 21 stores. A little over two years ago, the company embarked on a store redesign spearheaded by James Nakaoka, an architect with the West Los Angeles firm J.T. Nakaoka & Assoc., which has credits including Bergdorf Goodman and Rampage stores.
Some compare the stores to Bebe units. They are romantic but minimal. Padded furniture and drapes give the fitting areas an elegant, salon-like atmosphere.
But the emphasis isn’t necessarily on decor. Rather, the design is meant to maximize selling space, evidenced by its impressive numbers. An average store, about 7,000 square feet, pulls in about $400 a square foot a month, or $4,800 a year, said Chang. The top locations average $1,000 a square foot a month.
By comparison, Wet Seal and Charlotte Russe generate from $250 to $350 a square foot per month, while retailers on Rodeo Drive generally rack up $1,000 to $3,000 a square foot, according to analysts.
“They have hit the bull’s eye,” noted David Contis, chief operating officer of Macerich, a real-estate mall developer with more than 54 shopping centers nationwide. Macerich malls are home to about five Forever 21 stores and Contis said he would welcome more.
“What they do is create a value-oriented product,” he said. “The consumer feels on the cutting edge of fashion, wears the outfit five times, then discards it. And they are able to bring that girl in time and time again.”
Robert Burghdorf, executive vice president of Westfield Corp., another mall developer with more than 39 malls across the U.S., agreed.
“I have a significant number of Forever 21 stores in our centers and they’ve performed extraordinarily well, in many cases running two to four times the sales volumes of other junior stores,” he said. “If Forever 21 is not in a center of ours, it’s frequently the number-one requested store. They’re absolutely one of the most exciting fashion concepts that have come our way in a long time.”
Others are a bit more cautious with their reviews. Kurt Barnard, president of Barnard’s Retail Trend Report in Montclair, N.J., said even though sales are high, it doesn’t mean Forever 21 is turning a profit. “H&M hasn’t been profitable,” he noted.
And some question whether Forever 21 is ultimately too good to be true. “I have been in their stores with various vendors who look at the prices and say, ‘How in the heck are they doing this?’ ” noted one analyst, who spoke on condition of anonymity. “They are becoming a formidable competitor in the mall — great fashion and fabulous value — but some vendors are scratching their heads.”
Claudine Murphy, executive vice president of Look-Look, a Los Angeles-based youth market research firm looks at it this way: “It’s like those 5-7-9 stores. As stores like Bebe move up in prestige, there is an opportunity for someone to come in and kind of fill the gap.”
She noted Forever 21 tends to be in malls with a Sam Goody instead of Virgin Mega stores. “You can go get the little halter top and it’s under $20. If you go into Bebe, something like that is going to be $40 or $50, and that’s expensive for many girls.”
Forever 21 generally does not advertise and Murphy has found the chain is not widely recognized by the youth market Look-Look includes in its research.
“Forever 21 doesn’t have the same kind of penetration yet,” she said. “There’s not brand awareness there. It doesn’t really show up on the radar.”
The new division might change that. The company is planning to advertise the Forever XXI department store, a project it expects it to rack up between $10 million and $30 million in sales its first year, according to Chang, who said he has been dreaming about the concept since his first store.
“I’ve had 17 years to think about it,” he said.
Chang is tight-lipped about the details, but said Forever XXI will house apparel, lingerie, cosmetics, shoes and accessories. Price points and the target age will be the same.
“I want customers to stay in my store one hour,” he said, promising there will be attractions that will keep them there for at least that long. “I have very high expectations. We want to create that same energy and excitement — just in a bigger space.”