October 7, 2008
Forever 21 Looks to Get Much Bigger with Mervyns Bid
If at first you don’t succeed….
Four years after Forever 21 failed in an attempt to purchase Mervyns from Target, the discount apparel chain is now making another bid to acquire 150 of the department stores locations as it operates under Chapter 11 bankruptcy protection.
“Our vision has always been to get a bigger box,” Christopher Lee, senior vice president of Forever 21, told the Los Angeles Times. “We’ve been looking at these assets for many years.”
Most of Forever 21’s 430 U.S. stores are between 10,000 to 20,000 square feet and located in malls. Over the past couple of years, the chain has sought to open some larger stores such as converting a 40,000 square-foot site that had housed a Saks Fifth Avenue emporium. The average Mervyns runs about 80,000 square feet.
Liz Pierce, a retail analyst at Roth Capital Partners, told Apparel News, “If they can get this at a great price, if they have the capital to do it and it doesn’t cause any pain, it could be a wise move. And then I could make the argument of, ‘Whoa, really?’ I don’t know their return on investment on those big-box stores versus their smaller stores. And then there is the elephant in the room with the economy.”
Jeffrey Van Sinderen, a retail analyst at B. Riley & Co., said, “Real estate is low right now. If you can get it at the right price, it is probably not a bad move at this juncture. It diversifies their footprint. It’s an interesting idea.”
Discussion Questions: Is now a good time for Forever 21 to be looking to buy 150 Mervyns? Will the Forever 21 concept translate from the smaller store format that has driven the chain’s growth to a much larger footprint?
BrainTrust
Recent Discussions
Discussion Questions
Poll
Here is a different take just based on personal experience: I think it’s the best time to buy real-estate as the market is depressed and so now is an excellent time to buy.
I have been to both the Pasadena (former Saks) and Americana (Glendale) footprints which are both bigger than the mall footprints and these stores are packed and provide a better lifestyle experience for the consumer because of the size and decor, high ceilings, chandeliers etc. With all of the competition in the marketplace, consumers are looking for an experience with their shopping and will frequent a more aesthetic location faster than they will a packed small mall store. Also the decor with the chandeliers and more space provides an aesthetic that raises the value of the merchandise and the experience.
A department store feel is a different experience and if it’s done well can be very powerful as a customer will spend more time in the store. This makes the model work very well as the perception is that you are getting expensive and fabulous trend right merchandise. At those prices, who wouldn’t buy?
H&M has successfully expanded with larger locations which have worked. It would behoove Forever 21 to come up with a campaign like H&M did when they had Madonna and Stella McCartney design merchandise for a season. Target has effectively leveraged top designers and so have many other retailers.
Target brought me in to Mervyns to develop home product just before they sold, as I was a known lifestyle name. In this economy, companies need a marketing edge that will raise awareness and bring in new consumers–a PR coup of some kind. I am very familiar with most of Mervyns locations as I have hundreds of skus of branded product there.
I don’t know where Mervyns is going with their business at this point but from an objective view, the Mervyns footprints are perfect for Forever 21 as Mervyns also built its business on apparel. I have built my business on understanding consumer needs and this is what we do. My two cents: the consumer will easily buy into this larger concept and it will actually expand their customer base to include new customers who only shop department stores. I think Forever 21 needs to develop a great baby and kids program. They tried baby at the Pasadena location and took it out as it was small and more of an afterthought. To align with their brand they should do “hip kids” apparel which aligns with what they are already selling and do it for kids 7 and up. This will bring in mom’s who will then purchase clothes for themselves as well. My 8-year-old loves going to Forever 21 but nothing fits her but we always end up with jewelry!
I believe there have been a lot of great comments made here already, however I have to strongly agree that cheap real estate isn’t reason enough to expand as quickly as Forever 21 wants to. Consideration of maintaining a new concept along with the capital investment necessary to stock and maintain these stores can turn out to be a big drain on Florever 21’s cash flow. Management needs to look at all aspects of this move before going through with such a large expansion in these challenging economic times.
Yes, there is cheap real estate available in these times. That may be a good reason to do some deal (e.g., a bunch of 10-20k square foot boxes), but this deal is going to be very tricky.
The box seems too big for their concept. Even if they can find the right merchandise to put in the box (which won’t be easy), operating larger size stores is a whole different ballgame, requiring a different type of store management structure and skill base. Then, they’ve got all the economic uncontrollables to worry about. Maybe they’ll make it work…but if so, I’ll be very impressed!
You’re talking about fashion apparel for young shoppers. We all know as much about that as we know about today’s trades on Wall Street.
I’ve seen the Forever 21 stores and they are so jammed with merchandise that they could probably use some bigger footprint stores. As big as Mervyns? It all depends on the price of the properties and how much refurbishment they will need.
I assume that Forever 21 plans to operate its own concept in big boxes rather than operating Mervyns as an ongoing business. (At least I hope so, otherwise it’s a significant mismatch.) It’s an opportunistic time to pick up real estate but Forever 21 needs to ask some self-critical questions before it moves forward:
1. Is there enough assortment to support the content you need in 80,000 square feet? Do you propose to become another H&M by adding men’s and kids’ content? And is your own “house in order” as far as clarity of assortment, disciplined store operations, and so on?
2. Mervyns’ real estate portfolio is in perhaps the most economically depressed area of the country. Does it make sense to put your “stake in the ground” on the West Coast when there is probably a more diverse portfolio of locations available around the country?
3. Do you have the infrastructure to support this move, not only in terms of your headquarters team but also in terms of systems, logistics, and so on?
If Forever 21 can’t answer “yes” to most or all of these questions, they ought to consider alternative paths to growth.
It is easy to say now is a bad time to expand but I agree that now is the time to get favourable lease rates and locations. And when the economy does turn around, strategically it is more profitable to be ready at the start of a turn around. Some recent expansion moves do leave me scratching my head but in terms of locations, I don’t think there is ever a bad time to open more locations.
Our local Mervyns is a two story mall anchor (Or it used to be!). Both floors have entrances. In no way do I see Forever 21 using both floors. One would be a stretch.
Sure, F21 has a big store in San Francisco but that has to be one of only a few.
In our suburban market that segment is catered to by the boutique size chains, plus larger stores like The Gap plus Nordstrom and Macy’s. Everyone that’s not a boutique size has men’s and women’s. I see them using all of ten percent of the Mervyns stores.
Here in Marin County, CA, we’re nearly untouched by the economic problems and still there are too many empty retail spaces. F21 would do well here in a store the size of The Gap at the max, which is about 10 % the size of Mervyns.
This deal sounds crazy.
Real estate is cheap, but as the mother of 2 teenage girls that love Forever 21, I would fear that they will loose the attraction. The “in mall” stores that Forever 21 currently have, leverages the fact that kids (boys and girls) like to hang out in the mall. It also gives the illusion that they are shopping at a higher end store. By moving toward a large store outside of the mall, I’m afraid they will take on the concept of a TJ Maxx purchase. Thus losing their perceived status that young girls apply to Forever 21.
While there are some good location opportunities, the retailer would have to do a total remake of its business in order to utilize them. That doesn’t sound like a good move. There is a potential opportunity to get some good locations at bargain prices, but at what cost?
It’s been pointed out that they need larger stores, but quadrupling or more doesn’t sound prudent. Maybe the way to go would be to pair with another retailer and acquire two level stores in two level malls that they could vertically split between them.
From yesterday’s LA Times:
“(Senior VP) Lee said the company hadn’t decided yet what it would do with the stores if its offer is accepted, but it would probably convert many of them to the Forever 21 brand and close the rest.”
I find this idea, if not incredible…remarkable that in a depressed retail market, and a depressed and still falling real estate market, a company wants to buy hundreds of leaseholds that are too big for its own format(s) by a factor of 2-8, and for which it is apparently undecided what it would do with them (other than close many of them)…. Maybe they should consider renaming themselves “Forever 11” (as in Chapter…).
What no one above appreciates is how 21 buys their merchandise and I’m not really sure, from the looks of the comments, that anyone’s ever really studied their stores. Would you call that an assortment, or a [mess] ???
Forever 21 is another Steve & Barry’s waiting to happen.
It isn’t just a matter of getting the real estate for a great price. As several of the comments noted, the Forever 21 concept may not fit an 80,000 square foot store.
Consider, even if Forever 21 determined that they could double their current floor space and better merchandise their current range, they still have half a store left. Unless the locations are perfect, inventory will sit. Inventory does have a cost. Just because you have more available doesn’t mean that you can sell more in the store’s radius.
They must be prepared to extend their range to include additional targets as customers, or additional lines for their targets.
Forever 21 started with a 900 square foot location in 1984. Today the chain does over $1 billion sales. Their recent Pasadena store has 40,000 square feet. So taking Mervyns’ locations doesn’t seem so crazy, if the price is low enough.
More Discussions
As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…Is Supply Chain Volatility Here To Stay?
Can we expect an ongoing volatility to remain in terms of retail supply chain?Has Same-Day Delivery Become an Expectation Across Retail?
Are expectations around retail delivery speed in flux?
Here is a different take just based on personal experience: I think it’s the best time to buy real-estate as the market is depressed and so now is an excellent time to buy.
I have been to both the Pasadena (former Saks) and Americana (Glendale) footprints which are both bigger than the mall footprints and these stores are packed and provide a better lifestyle experience for the consumer because of the size and decor, high ceilings, chandeliers etc. With all of the competition in the marketplace, consumers are looking for an experience with their shopping and will frequent a more aesthetic location faster than they will a packed small mall store. Also the decor with the chandeliers and more space provides an aesthetic that raises the value of the merchandise and the experience.
A department store feel is a different experience and if it’s done well can be very powerful as a customer will spend more time in the store. This makes the model work very well as the perception is that you are getting expensive and fabulous trend right merchandise. At those prices, who wouldn’t buy?
H&M has successfully expanded with larger locations which have worked. It would behoove Forever 21 to come up with a campaign like H&M did when they had Madonna and Stella McCartney design merchandise for a season. Target has effectively leveraged top designers and so have many other retailers.
Target brought me in to Mervyns to develop home product just before they sold, as I was a known lifestyle name. In this economy, companies need a marketing edge that will raise awareness and bring in new consumers–a PR coup of some kind. I am very familiar with most of Mervyns locations as I have hundreds of skus of branded product there.
I don’t know where Mervyns is going with their business at this point but from an objective view, the Mervyns footprints are perfect for Forever 21 as Mervyns also built its business on apparel. I have built my business on understanding consumer needs and this is what we do. My two cents: the consumer will easily buy into this larger concept and it will actually expand their customer base to include new customers who only shop department stores. I think Forever 21 needs to develop a great baby and kids program. They tried baby at the Pasadena location and took it out as it was small and more of an afterthought. To align with their brand they should do “hip kids” apparel which aligns with what they are already selling and do it for kids 7 and up. This will bring in mom’s who will then purchase clothes for themselves as well. My 8-year-old loves going to Forever 21 but nothing fits her but we always end up with jewelry!
I believe there have been a lot of great comments made here already, however I have to strongly agree that cheap real estate isn’t reason enough to expand as quickly as Forever 21 wants to. Consideration of maintaining a new concept along with the capital investment necessary to stock and maintain these stores can turn out to be a big drain on Florever 21’s cash flow. Management needs to look at all aspects of this move before going through with such a large expansion in these challenging economic times.
Yes, there is cheap real estate available in these times. That may be a good reason to do some deal (e.g., a bunch of 10-20k square foot boxes), but this deal is going to be very tricky.
The box seems too big for their concept. Even if they can find the right merchandise to put in the box (which won’t be easy), operating larger size stores is a whole different ballgame, requiring a different type of store management structure and skill base. Then, they’ve got all the economic uncontrollables to worry about. Maybe they’ll make it work…but if so, I’ll be very impressed!
You’re talking about fashion apparel for young shoppers. We all know as much about that as we know about today’s trades on Wall Street.
I’ve seen the Forever 21 stores and they are so jammed with merchandise that they could probably use some bigger footprint stores. As big as Mervyns? It all depends on the price of the properties and how much refurbishment they will need.
I assume that Forever 21 plans to operate its own concept in big boxes rather than operating Mervyns as an ongoing business. (At least I hope so, otherwise it’s a significant mismatch.) It’s an opportunistic time to pick up real estate but Forever 21 needs to ask some self-critical questions before it moves forward:
1. Is there enough assortment to support the content you need in 80,000 square feet? Do you propose to become another H&M by adding men’s and kids’ content? And is your own “house in order” as far as clarity of assortment, disciplined store operations, and so on?
2. Mervyns’ real estate portfolio is in perhaps the most economically depressed area of the country. Does it make sense to put your “stake in the ground” on the West Coast when there is probably a more diverse portfolio of locations available around the country?
3. Do you have the infrastructure to support this move, not only in terms of your headquarters team but also in terms of systems, logistics, and so on?
If Forever 21 can’t answer “yes” to most or all of these questions, they ought to consider alternative paths to growth.
It is easy to say now is a bad time to expand but I agree that now is the time to get favourable lease rates and locations. And when the economy does turn around, strategically it is more profitable to be ready at the start of a turn around. Some recent expansion moves do leave me scratching my head but in terms of locations, I don’t think there is ever a bad time to open more locations.
Our local Mervyns is a two story mall anchor (Or it used to be!). Both floors have entrances. In no way do I see Forever 21 using both floors. One would be a stretch.
Sure, F21 has a big store in San Francisco but that has to be one of only a few.
In our suburban market that segment is catered to by the boutique size chains, plus larger stores like The Gap plus Nordstrom and Macy’s. Everyone that’s not a boutique size has men’s and women’s. I see them using all of ten percent of the Mervyns stores.
Here in Marin County, CA, we’re nearly untouched by the economic problems and still there are too many empty retail spaces. F21 would do well here in a store the size of The Gap at the max, which is about 10 % the size of Mervyns.
This deal sounds crazy.
Real estate is cheap, but as the mother of 2 teenage girls that love Forever 21, I would fear that they will loose the attraction. The “in mall” stores that Forever 21 currently have, leverages the fact that kids (boys and girls) like to hang out in the mall. It also gives the illusion that they are shopping at a higher end store. By moving toward a large store outside of the mall, I’m afraid they will take on the concept of a TJ Maxx purchase. Thus losing their perceived status that young girls apply to Forever 21.
While there are some good location opportunities, the retailer would have to do a total remake of its business in order to utilize them. That doesn’t sound like a good move. There is a potential opportunity to get some good locations at bargain prices, but at what cost?
It’s been pointed out that they need larger stores, but quadrupling or more doesn’t sound prudent. Maybe the way to go would be to pair with another retailer and acquire two level stores in two level malls that they could vertically split between them.
From yesterday’s LA Times:
“(Senior VP) Lee said the company hadn’t decided yet what it would do with the stores if its offer is accepted, but it would probably convert many of them to the Forever 21 brand and close the rest.”
I find this idea, if not incredible…remarkable that in a depressed retail market, and a depressed and still falling real estate market, a company wants to buy hundreds of leaseholds that are too big for its own format(s) by a factor of 2-8, and for which it is apparently undecided what it would do with them (other than close many of them)…. Maybe they should consider renaming themselves “Forever 11” (as in Chapter…).
What no one above appreciates is how 21 buys their merchandise and I’m not really sure, from the looks of the comments, that anyone’s ever really studied their stores. Would you call that an assortment, or a [mess] ???
Forever 21 is another Steve & Barry’s waiting to happen.
It isn’t just a matter of getting the real estate for a great price. As several of the comments noted, the Forever 21 concept may not fit an 80,000 square foot store.
Consider, even if Forever 21 determined that they could double their current floor space and better merchandise their current range, they still have half a store left. Unless the locations are perfect, inventory will sit. Inventory does have a cost. Just because you have more available doesn’t mean that you can sell more in the store’s radius.
They must be prepared to extend their range to include additional targets as customers, or additional lines for their targets.
Forever 21 started with a 900 square foot location in 1984. Today the chain does over $1 billion sales. Their recent Pasadena store has 40,000 square feet. So taking Mervyns’ locations doesn’t seem so crazy, if the price is low enough.