Forever 21 Inc. has taken over some huge spaces lately. Now the retailer is about to get a premium foothold at South Coast Plaza by grabbing a smaller chunk of another retailer’s space at the upscale shopping center.
Los Angeles-based Forever 21, which has an estimated $3 billion in annual sales, is set to carve out its own space at an existing Sears store at South Coast Plaza.
The clothing chain, which targets teens and young women, plans to open a 43,000-square-foot store within Sears in the spring.
The move is a switch for Forever 21, which in recent years has taken over larger spaces by gobbling up former locations of the now-defunct Mervyns, Virgin Megastores and Gottschalks.
“If you take every successful apparel company in America, none of them have gone out and taken these gigantic multilevel stores,” said Howard Davidowitz, chairman of New York retail consulting and investment firm Davidowitz & Associates Inc. “They are doing things that other people haven’t done, and I think the Sears deal is consistent with that.”
Unlikely Alliance
So why the unlikely alliance of trendy Forever 21 and Hoffman Estates, Ill.-based Sears Holdings Corp.?
The deal is expected to give Sears a more fashionable image and a boost in shoppers. The upside for Forever 21 is it gets prime space in an upscale mall that the retailer isn’t in now.
Forever 21 will be able to draw a wide range of shoppers, said Marshal Cohen, a chief analyst who covers the apparel industry at the Port Washington, N.Y., market researcher NPD Group Inc.
For its part, Sears—better known for its appliances—might take a step toward changing its hardware store image.
“It helps Sears get past the lawnmower syndrome,” Cohen said.
Larry Meyer, executive vice president at Forever 21, said his company’s stores generate traffic for nearby retailers.
“When we go into malls and places, we do drive traffic,” Meyer said.
Forever 21 and Sears downplayed the South Coast Plaza deal. Executives from the two companies declined to provide terms of the sublease and were quick to point out that the Forever 21 at South Coast Plaza will not operate as a traditional store within a store, even though it has been widely described as such by retail observers.
At the South Coast Plaza store, Forever 21 will employ its own salespeople and operate its own cash registers. Customers will get Forever 21 sales receipts, not Sears receipts.
“Right now, it is one store in Costa Mesa where they’ve leased space from us to build a store,” said Kimberly Freely, a Sears spokeswoman. “It’s an adjacent store to our store.”
The Sears store now has about 300,000 square feet. After the Forever 21 sublease, Sears will be left with a little more than 250,000 square feet.
The two companies have reviewed other Sears locations where Forever 21 could take space, but no announcements have been made, Freely said.
Forever 21’s Meyer said there is no “strategic alliance” between his company and Sears to duplicate the South Coast Plaza model elsewhere. But he didn’t rule out the possibility of more subleases.
Fast Fashion
Forever 21 has become the nation’s fastest-growing apparel company thanks to what’s known as fast fashion, or inexpensive, trendy clothes and accessories.
The company is expanding abroad as well. Forever 21 said late last month that it’s planning to debut in Europe in December with two big stores set for Ireland and Britain. (There already are Forever 21 stores in Canada, Asia and the Middle East.)
Forever 21 was founded in 1984 as Fashion 21 by South Korean immigrants Do Won “Don” Chang and his wife, Jin Sook Chang.
The Changs soon changed the company’s name to Forever 21. In 1989 the couple opened their first store in a shopping mall—a 5,000-square-foot space in the Panorama Mall in Panorama City.
Since then, Forever 21 has expanded to more than 460 stores in the U.S. and abroad.
Forever 21’s business model of contracting with local clothing manufacturers has allowed the company to stock its stores with fashionable garments quickly—a key aspect of the company’s success.
Meanwhile, Sears, which financier Eddie Lampert acquired and combined with Kmart in 2004, has been struggling to establish its clothing business, especially among young women. Retail experts said Sears’ deal with Forever 21 will give the department store a much-needed makeover while bringing in rental revenue.
Forever 21 has been able to expand rapidly thanks to its ability to create stores in a variety of sizes and configurations.
“That gives them more opportunity to grow because they are flexible with real estate,” Davidowitz said.
But could Forever 21’s hip image get tarnished by being associated with Sears, which isn’t known as the trendiest of retailers?
“You could argue that,” NPD’s Cohen said. “But probably not. I don’t expect that Forever 21 will dilute the core product line that they carry in the stores.”
Forever 21 also has capitalized on the misfortunes of upscale retailer Saks Inc. and its Saks Fifth Avenue department store chain. Forever 21 is set to take over a soon-to-be-closed Saks store in Mission Viejo.
“In each case, if you analyze what Forever 21 did, it relates to acquiring opportunistic real estate and making lemonade out of lemons,” Davidowitz said.
Hyland is a staff writer with the Los Angeles Business Journal
