MR. AND MRS. CHANG

Do Won Chang and Jin Sook Chang arrived in the United States from South Korea in 1981. For three years, the married couple worked hard—he pumped gas and waited tables, she styled hair— and by 1984 they amassed $11,000 in savings that they used to purchase a single retail clothing store in Los Angeles. By 2014 they were billionaires, running one of the most recognizable fashion retailers in the world—Forever 21.152 And as they required of even their most senior executives, you can call them Mr. and Mrs. Chang.153

FAST FASHION, FAST GROWTH 

Forever 21 was a pioneer in fast fashion. Under this model, companies produce and sell on-trend clothing quickly and cheaply, making most current styles affordable and accessible to a wide range of consumers. Fast fashion is inexpensive and customers have little expectation for quality. Instead, the imperative is to get of-the-moment styles into consumers’ hands within weeks or even days of the trends first appearing on reality TV or influencers’ social media accounts.154

Forever 21 was a massive success, and the company grew very big, very quickly. At one point Forever 21 had almost 500 stores in the United States and more than 800 stores globally.155 As the so-called retail apocalypse took even the most established brick-and-mortar brands out one-by-one, Forever 21 leaned in. Eventually, having a Forever 21 store became a virtual requirement for any struggling mall that wanted a chance at survival.156

CONTROL PROBLEMS

What was it like to work in the upper echelons of such a massive and successful company? Former executives paint a picture of a tightly run ship. The inner circle of executives consisted of the Changs, their daughters Esther and Linda, and their close friends, married couple Alex and Seong Eun Kim Ok. Over the years only a handful of other close confidants entered and left the group, and some senior executives say they don’t recall having a single e-mail from or conversation with either of the Changs. The small team operated largely in isolation from the rest of the company, and every decision had to go through Mr. and Mrs. Chang.157

These decisions have been scrutinized in recent years as stories of poor planning and mismanagement surfaced. Insiders recall watching huge shipments of inventory stagnate in warehouses as they waited for the Changs to approve the items, then shipping at expensive overnight rates to make up for the lost time. There also are accounts of expensive mistakes in international operations, including shipments of shoes and cosmetics being confiscated at customs because the company hadn’t acquired proper import licenses. Much of this inventory wound up in dumpsters.158

The Changs were presented with big data, including market trends, previous years’ sales figures, and inventory projection, but they seemed to make subsequent decisions without regard for the pertinent data. Orders mostly reflected some combination of the Changs’ gut feelings, Western style preferences, and North American weather patterns. In some years this resulted in too much inventory, in others, not enough. It also led to international stores stocked full of clothing that was inappropriate for local weather, norms, and customers.159 There is little evidence that the Changs made any substantial changes to the company’s processes, systems, or supply chain in recent years.

By 2016 the Changs and their daughters had loaned the business at least $20 million and had borrowed another $18 million from a company in the Philippines. Their international stores weren’t turning profits, and the company had begun to quietly close some stores and downsize others.160 It also opened new stores that year and expanded several existing ones.161

NOTHING LASTS FOREVER

Retail has changed dramatically in the past 30 years. A young adult’s shopping experience in 1986 would be unrecognizable to today’s Gen Zers and young Millennials. Data show that the 18- to 24- year-old demographic (Forever 21’s target market) continues to increase its preference for online shopping.162 Young consumers also place significant value on corporate social responsibility.163 While Forever 21 was busy maintaining laser focus on physical expansion, direct competitors like Zara were adapting with sustainable clothing lines and streamlined online shopping experiences.164 And some recent players—ASOS and Revolve, for example—ditched the idea of physical stores altogether. Without the weight of retail space, these companies respond to trends almost instantly and can get new fashion into customers’ hands in record time.165 Forever 21 had increasing difficulty staying competitive in this landscape.

WHAT’S NEXT FOR FOREVER 21?

The Forever 21 corporation filed for Chapter 11 bankruptcy protection in September 2019. According to the filing, the Changs owned 99% of the company and Alex Ok owned 1%.166

Their decision to file for Chapter 11 bankruptcy provided an opportunity to reconfigure operations as they attempted to stabilize and, hopefully, come back stronger.167 The company sold hundreds of store locations along with its LA headquarters and distribution center and negotiated over $100 million in deductions to its rent payments.168 It planned to abandon operations in Europe and Asia altogether and focus instead on its more lucrative markets in Mexico and Latin America.169

Some experts worried that the Changs’ continued refusal to cede any equity as they negotiated with creditors would ultimately be the company’s downfall. Others were confident that Forever 21 would weather the storm.170 In February 2020, the Changs reached a deal to sell the company’s retail stores and e-commerce sites for $81 million.171 By May 2020 the remaining Forever 21 shell corporation appeared to have little funds left to cover payment plan installments or legal fees, and the United States Trustee Program (an arm of the Department of Justice dedicated to federal bankruptcy cases) recommended that the filing be dismissed or converted to a Chapter 7 bankruptcy (liquidation).172 As fashion analyst Anusha Couttigane put it, Forever 21’s experience should serve “as a cautionary tale for retailers that are slow to innovate and embrace change.”173

 POST

Problem-Solving Perspective

What is the underlying problem in this case from the perspective of Forever 21’s customers and creditors?

Why do you think Forever 21 ended up in its current situation?

What would you have done differently if you had been a senior executive at Forever 21?

Application of Chapter Content

Which of the seven challenges to being an exceptional manager did the Changs face as leaders of the company? How did they handle them?

Which of the three skills that exceptional managers need did the Changs most lack? Explain your answer.