It sounded almost satirical when Forever 21, the fast-fashion retailer known for its rock-bottom prices, announced plans for a new concept store devoted to selling its cheapest clothing. But the company wasn't kidding: F21 Red, as it's known, has been up and running for almost three weeks at a shopping center outside Los Angeles, and it represents the first store in what may be a new chain.
Forever 21 says that customers wanted a separate store for the chain's basics, which come at stunningly low prices — $1.80 for camisoles, $7.80 for jeans, and $3.80 for T-shirts. That matches prices in regular stores and online, a spokeswoman told BuzzFeed. But F21 Red gives the impression it's a discounted Forever 21, since its staples are among the retailer's cheapest merchandise, and the point of the 18,000-square-foot space is to sell a vast amount of such items.
Whatever Forever 21's ambitions, the new store has mostly drawn renewed attention to how the private company can afford to sell shirts and leggings for the price of a latte or a breakfast sandwich. The human cost of fast fashion has been in the spotlight since the collapse of Rana Plaza in Bangladesh last year, a tragedy that left more than 1,000 dead, and some experts are wondering why Forever 21 is choosing to showcase such low-cost clothing.
It's not possible for clothes sold at these prices to be made in a humane way on a sustainable basis, says Allan Ellinger, a senior managing partner at investment bank and restructuring advisor MMG, which advises the fashion and retail industries.
"Think about the steps that go into a garment — if you think about something that's all cotton, somebody has to grow the cotton, pick the cotton, that cotton then has to be cleaned and put through a spinning process to create yarn," he explained. "The yarn then needs to be dyed, the dyed yarn then needs to be knitted, the knitted fabric then needs to be cut, sewn, pressed, labels have to be put on, hangtags have to be put on ... then they put it in a cart and ship it to a warehouse then ship it to a store."
"Think of all the steps that have gone into that garment just to get it to the selling floor ... there are people making a profit on every single add-on," he said. "Then you bring it to the store and the store's going to make a profit? I'm not quite sure how this works."
Typical department stores work at a 55% to 65% markup, while somewhere like Costco might have just a 16% markup, but it's making lots of money on memberships, Ellinger said. Even if Forever 21 is working on just a 40% markup, it's spending very little on the actual clothing if it's turning a profit, he added.
Still, Forever 21 says it can obtain such prices because it has more than 600 stores now and can buy massive volumes of product then cut margins to pass savings on to customers. It's also possible the company has trade secrets that enable it to make clothes more cheaply than competitors, or that it's using F21 Red to draw in new customers without much regard to doing it profitably.
The retailer, which doesn't manufacture its own clothing, "purchases goods from vendors who are required to follow our policies and procedures which expressly prohibit the use of child or slave labor to manufacture the clothing and accessories we sell," a spokeswoman said in an email to BuzzFeed. "We have a strict vetting process when we first start business with new vendors, and this includes visits to, and review of, the factories and the workforce. We also require all of our vendors to sign strict VARCLEL (Vendor Agreement Relating to Compliance with Labor and Employment Laws) contracts where they confirm in writing that they will act in full compliance with the local laws." (Many of the items at F21 Red were made in Vietnam, Cambodia, and China, BuzzFeed reporter Lara Parker observed on a recent visit to the store.)
Either way, what Forever 21 is doing at F21 Red has an effect on other companies and the way Americans shop.
The F21 Red concept and its "insanely low opening price points" should continue to put pressure on other specialty apparel retailers, Cowen & Co. analysts led by John Kernan wrote in a note earlier this month. "It would be difficult for traditional teen retailers to profitably design and source to similar price points, which may be necessary in order to reverse weak sales and store traffic trends," he wrote.
It's unclear who Forever 21 is competing with through F21 Red. The chain may be looking to Japanese retailer Uniqlo — an interesting development given Uniqlo USA only recently hired Forever 21 Executive Vice President Larry Meyer to lead the company's expansion. Just like Uniqlo, F21 Red focuses on basics, and all of its signage is in red and white. Further, F21 Red's "Fashion for Everyone" slogan is incredibly similar to Uniqlo's "Made for All" tagline. The key difference is that Uniqlo is able to offer better-quality products at competitive prices — certainly higher than those at F21 Red — because it places orders at factories far in advance.
It remains to be seen whether F21 Red will become a new fixture in strip malls. While Forever 21 doesn't publicly share sales information because it's private, F21 Red's grand opening on May 10 attracted a 300-person line, and the company says it's been "pleased" with results since then.
"It's going to take a lot of people going through that store and a lot of product to create the kind of gross margin dollars that are going to make a difference here," Ellinger said.
Additional reporting by Lara Parker in Los Angeles.