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Can Forever 21 become a significant force in the European clothing market?

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Headquartered in Los Angeles, fast fashion chain Forever 21 is due to launch its first stores in the UK in November and is planning further openings in continental Europe during the course of 2011. But with the level of competition already fierce, is there space for yet another fast fashion chain?

US take on fast fashion proves a hit with Americans

The cheap, chic and funky style of Forever 21 seems to perfectly match young Americans' tastes. Currently, Forever 21 operates over 480 stores in the US and sales have increased by over 300% over the past eight years, outperforming most of the already established US brands. Last summer, the company opened two large stores in the most prominent locations - a 90,000 sq ft store in New York's Times Square and a 120,000 sq ft store in the Fashion Show shopping mall in Las Vegas. As historically most of Forever 21's stores have ranged between 4,000-20,000 sq ft, these recent openings reflect the direction the retailer is taking in opening larger stores capable of stocking more ranges and product lines.

Forever 21 has also proved to be one of the few major US retailers that have weathered the crisis relatively well, maintaining double-digit growth. In fact, the US economic downturn only played to Forever 21's advantage as the company managed to secure over 20 attractive locations from the bankrupt department stores Mervyn's and Gottshalks. Each of these sites cover 80,000-100,000 sq ft, thus fitting well with the company's latest strategy for bigger stores.

International expansion accelerates

Outside the US, the company is also present in Canada, a number of Asian countries, including South Korea and Japan, and operates a few stores in the Middle East.

Its first Japanese store opened in Tokyo in the Harajuku district in 2009 and was visited by a record one million customers in just the first two months, as reported by the Japan External Trade Organisation. Following this success, the company has opened three more stores during 2010 and is eventually targeting 100 stores in the Japanese market.

But there is more. With confidence boosted by its successful operations in its home country as well as Japan, the retailer is now expanding into India. The first store was opened in September 2010 in New Delhi and if the response is positive further openings will be considered.

Testing the waters in Europe

Outlets in Birmingham, Dublin and London Stratford are set to become the company's first in Europe. In the near future, the company also plans to open stores in other UK cities as well as flagship stores in London's Oxford Street and possibly in France, Belgium, the Netherlands, Italy, Spain, Germany and Austria.

However, the company has remained quiet about specific plans in terms of number of stores to be opened in Europe. As such, the UK openings are considered to be a way of testing whether the highly competitive European market can absorb another fast fashion chain.

The UK specifically is very crowded not only with powerful multinationals Zara and H&M ruling the roost, but also well-established UK-based low-price chains New Look and Primark as well as the strong presence of private label lines such as Asda's George and Tesco's F&F. With such a variety of cheap chic available it will prove very difficult for the retailer to attract the spoilt-for-choice British consumer.

As price will not be a key differentiator of Forever 21's offer (the company operates a similar low price/high volume model to its main competitors), the brand will need to find another way to convince consumers its offer is distinctive. In the US, the company benefits from strong publicity, with a number of celebrities supporting the brand. This, however, is not the case in the UK where the brand is currently unknown to the majority of shoppers.

UK high street style is also considered to be more edgy than in the US and therefore the same designs might not work as well here as they do there. Without the advertising support that the other big brands receive, and with only a few stores, it will certainly be a challenge for Forever 21 to gain significant sales and pose a major threat to already established brands.

Could on-line business be the key to success?

The company, however, might have a different agenda than generating the majority of sales through its store-based operations. Setting up flagship stores in major European cities could be the first step in the process of developing a strong on-line business.

In the US, the internet already accounts for a significant share of the company's sales, a scenario which could definitely be replicated in the UK. In fact, over the long term, it is likely that internet sales will exceed store-based figures.

This strategy makes even more sense when taking into consideration expensive store rents in the UK compared to most US locations. Coupled with the fact that on-line followings for fashion brands are very high in the UK, building large on-line operations on the back of a handful of stores seems to be the best way forward for a new brand.

Learning from others

Forever 21 is not the first foreign fast fashion chain to try and break into the crowded European market. When Japanese brand Uniqlo decided to enter the UK in 2000, the plan was to open 50 stores over the following 3-4 years and make Uniqlo the “no 1 casual clothing store in the UK market”.

This, however, has never happened and a decade later the company operates 14 stores, a modest number compared to previously announced plans. The simple no logo approach did not catch on with UK consumers from the beginning, and for several years following the opening of its London flagship store in Knightsbridge the company operated at a loss. In 2007, Uniqlo decided to undertake major changes.

The company opened two large Oxford Street stores with a new logo featuring the Japanese and English versions side by side. This helped to change the way shoppers perceived Uniqlo and improved its brand recognition in the UK. At the same time, the company launched its UK transactional website way before its main rivals, including H&M and Inditex, which supported the launch of the two Oxford Street stores and generated extra sales.

Will Forever 21 become a game changer?

Uniqlo's example shows just how important it is for retailers to adapt their brands to European consumers. As retail spending in the UK and Europe starts to recover, now would seem to be a good time to enter the market. Success will also depend on how fast the company will be able to roll out flagship stores and build on-line operations.

One thing is certain. In fashion, consumers are always hungry for novelty and as such Forever 21 stands a good chance of doing well in Europe, which in turn is expected to put extra pressure on other players. It is definitely the one to watch.

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