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ramsha ahmad

on 4 June 2015

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Transcript of FOREVER 21

By Ramsha Ahmad
Period 1W
APMicro, Schwen
Forever 21 provides "goods" according to consumer demand.
Latest fashion trends determine supply; Forever 21 was sued over 50 times for copying designer brand names in retails (oops!)
Oracle planning system is used to ensure accessories and apparel sold weekly are what consumers are looking for and increase sales.
Consumer Sovereignty
Substitute stores of forever 21 include retail that appeals to the same type of consumer who wants to pay less for designer/fashionable looks.

H&M could be considered Forever 21's closest substitute...both stores adhere to "fashion meets consumerism" motto, have low prices, high supply and demand according to consumer trends.
-Both stores provide goods with elastic demand.
Complementary Goods
Forever 21 sells womens, mens, children and girls clothing, in addition to accessories, and beauty products; Love & Beauty line.
In stores, to complement clothing accessories like hats, sunglasses, boots, shoes and handbags are displayed.
Ex: In the Times Square location, separate floor for jewelry and accessories/
By registers , there are large displays of accessories and cosmetics so customers have the incentive to buy and pair them with their purchases.

Market Structure
The company was founded in 1984 by Don Wong Chan and his wife in Los Angeles, California.
Originally known as Fashion 21, it made $700,000 in its first year, beating out many competitors.
Monopolistic Competition
Complementary Brands
Complementary brands of Forever 21 include Heritage 1981, Love 21, and XXI Forever.

They provide different styles; vintage, indie, contemporary, or trendy-teen (example of differentiation and heterogeneity of products).

Interestingly enough, these brands are included under Forever 21, but also are alternate store names for Forever 21..

They reflect the expansion of Forever 21 from a "900 ft. square store in L.A" to over 600 stores worldwide.
Ex: H&M, Zara and Forever 21 sell
affordable and fashionable clothing
and have similar business ethics,
but are not perfect substitutes
due to differentiation product wise.

Forever 21 is an example of monopolistic competition because it has low barriers to entry, offers similar but differentiated products, and has many competitors on a local and global scale.
Speaking of competition, in the Times Square location, Forever 21 and H&M are only one block apart...
At forever 21, there are usually 5-6 workers at check-out registers.

Marginal product of labor decreases if the number of workers exceeds this amount, depending on the size of the store; forever 21 stores have multiple floors --> large scale of plant.

Marginal revenue product must be equal or greater than wage; the wage of an average sales associate at Forever 21 is usually about $9.01 per hour and car vary on the hours worked; have been limited since lawsuits have been raised.
Scale of Plant
The letter by a HR associate director shows
that staffing levels were reduced.
A number of full time management positions were decreased. Hours were decreased to 29.5 hours/week.
These consequences could mean that marginal product of output decreased, since workers were cut, and thus marginal revenue product was less than wage, which remained the same while hours were cut. This could create an inefficient labor market.
Diminishing marginal product of labor is shown
A profit maximizing firm will hire until MRP of labor= Wage

When MRP<wage, supply will also be driven down as a result; hurting the firm
Forever 21

After the 6th worker, marginal revenue product, and marginal product decrease
Shifts in Supply
Shifts in supply include consumer trends according to the latest fashions, social media influences including Instagram, Facebook. Oracle app, competition from substitutes.

Fact: Company uses "fast fashion model" to get new trends to stores as quickly as it can.

There is excess supply because prices are cheap, and cost of labor is cheap (ex: jeans at forever 21 sold at $15, other teen retailers sell at $30-40 like American Eagle).

Each few weeks, retail supply is changed so there is a diverse selection for new seasons due to consumer demand.

Fact: Forever 21 displays "now trending" signs to guide customers to specific floors with "hot items."
Fast fashion
Designer Imitation
Latest trends
Shifts in DEMAND
Advertising & Goodwill
Supply is determined by the demand (elastic demand-low prices), thus consumer trends, social media trends, and low price play major roles
Trends are determined by seasons, and fast fashion retailers react very quickly
Demand shifts to the right when more "now trending" clothes are produced
Forever 21 recently introduced a Mens line to also target the older demographic (demand by male demographic increased)
Due to the excessive demand for forever 21 goods, retail is mass produced (globalization) and price change (ex: sales, coupons) also affects the demand curve
Monopolistic competition allows Forever 21 to determine its own supply and demand and have control, while also being a private company
Forever 21 is constantly advertising products;
Even within the store, and on its own website, links to "trending " items are listed,
price discrimination
helps with "sale items," and within the store the customers are encouraged to list their email to receive coupons and good deals, while also getting an incentive to shop at Forever 21.
Social media
: Forever 21's Instagram has 6.7 million followers as of now with the heading "Like it. Wear it. Share it." The Facebook page also has a following of 11 million, and constantly updates with new arrivals and trends
Magazine features in trendy teen magazine; ex: Teen Vogue.
Celebrity Endorsements
: Famous high-fashion models Francisco Lachowski and Kendall Jenner modeled for F21.
Multiple large scaled stores on a global scale; increases publicity and popularity for the company.
Models for Forever 21
Francisco Lachowski
Kendall Jenner
Did you know...on the bottom of each forever 21 bag, the quote "
John 3:16
" is printed to show the company owners devotion to
The forever 21 bags are also
recyclable and reusable.
Forever 21 commits to environmental sustainability; low energy use, and recycling, reusing, and reducing is printed on bags.
The store also created initiatives to raise money for
including Big Brother Big Sister, Susan G. Komen Breast Cancer Research, American Red Cross, etc..
Reduce, Reuse, Recyle
Forever 21 operates over 600 stores throughout the Americas, Asia, the Middle East, UK, Europe, and e-commerce.
The company, making 3.85 billion dollars per year, hopes to become an 8 billion dollar company by 2017.
More than 60 % of the apparel is manufactured in China.
Fun fact: Many of the graphic tees follow slogans and quotes from Europe, Tokyo, etc..
Has stores in over 50 countries, and is rapidly growing each year.
Full transcript