Some 4.5 years after its hard-to-miss launch - and long lines - FOREVER 21 is undergoing a crisis in Israel. Sources inform “Globes” the brand suffered a sharp plunge in sales last year of up to 40% in some branches.
The drop raises questions over the brand’s future in Israel - whether it will continue operating as usual, cut back its branches, or scale back their size. A larger question mark hangs over the flagship store in Tel Aviv’s Azrieli Mall; the parties have yet to agree on a lease extension.
FOREVER 21 is a youth fashion brand, founded in Los Angeles in 1984 by South Korean businessman Do Won Chang and his wife. The company expanded rapidly in the past decade, with more than 700 stores in America, Asia, the Middle East, and Europe.
The global company operates a number of labels; FOREVER 21 is its main asset. The company generated $4.4 billion in revenue last year with a net profit of $124 million. Despite its scale, the company remains in private hands.
The first Israeli branch launched in December 2011 the 1,700-square meter, two-story flagship in Tel Aviv. The opening was a success and revenue at the Azrieli store reached NIS 5.8 million in the first few months.
Later, sales stabilized at NIS 4-5 million per month and some NIS 50 million per year. It’s no surprise the brand was welcomed with open arms in other malls. They saw it as an anchor that would provide them an advantage and were only too happy to free up floor space and even provide the company with favorable terms. A senior industry source said the excitement was based on the brand’s strength in the US, which led many to assume it would be especially successful in Israel.
The brand currently operates 7 massive branches, each with at least 1,600 square meters of space. Besides the Azrieli Mall location, FOREVER 21 has a presence at the Kiryon, the Malha Mall in Jerusalem, the Grand in Beersheva, the Ayalon Mall in Ramat Gan, the BIG Fashion in Ashdod, and the Gold Mall in Rishon LeZion.
Sources said all seven branches including the flagship store have seen a double-digit drop in sales.
“It reminds me of Mango, when it was run from abroad”
One senior retail source said, “FOREVER 21 was a new brand which was strong in the US, so everyone here came to shop, but if you don’t find what you want, you don’t come back to buy more. In the US it works, but I heard there’s a drop there too.”
The Azrieli Mall in Tel Aviv even discussed removing the brand and replacing it with other labels. Talks are still ongoing between the global company and the Azrieli group. Sources said the company was interested in maintaining the flagship, despite the dropping sales.
A senior fashion industry source said the owners of the global company wish to transfer the operations of the brand in Israel to a franchisee but negotiations with several potential partners have yet to make headway. On the other hand, a source close to FOREVER 21 said “There were many delegations to the global company who wanted to get the brand, but the company isn’t interested. It doesn’t have franchises anywhere in the world.”
All sources which conduct business with the fashion brand, which spoke to “Globes”, laid the blame on management issues because the brand doesn’t have a CEO in Israel but is run from the headquarters in Los Angeles.
A senior industry source said, “The problem is management. Who manages the brand in Israel? Do you know them? I don’t. When you want to check something, who do you call? Let’s see you try to get someone on the phone.”
Who is the contact person here?
“No one. You need to call the US to speak to someone.”
The global company hasn’t done anything?
“I don’t know. I guess it’s not worth investing too much energy. I think if someone took responsibility for the brand, it has a chance, but I haven’t heard interest from anyone. There are new players in the market putting up a fight like Urbanica; the question is whether they want to invest in Israel or not and that needs to be decided by the business owner somewhere in the US or South Korea.
Another industry source said, “The proceeds aren’t amazing considering the size of their stores. They have a management problem in Israel. It reminds me of a case from the past, Mango, which was run from abroad. FOREVER 21 is empty, it doesn’t have enough merchandise, and it isn’t replaced enough I guess consumers notice. The drop in sales is seen across the country. On the other, it’s important for us to keep these chains in Israel. This chain is found everywhere in the world, and it should also be here in Israel. If they transfer the brand to an Israeli franchisee, I have no doubt it will work better.”
The evidence for the management issues were reported last year. At the time, “Globes” revealed the chain raised the prices on most of its merchandise in Israel by 7%-15% at the beginning of the season.
The MSRP was already printed on the original tags as priced by the chain. But after the prices were raised, stickers were placed over the original price. Anyone who bothered to peel off the sticker was shocked to discover the change.
FOREVER 21 did not comment on the report.
Published by Globes [online], Israel business news - www.globes-online.com - on May 10, 2016
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