Forever 21 is one of the most popular American fashion retail chains that offers a wide range of current fashion apparels, accessories, beauty products for girls, women, and men at an economic price. In 2012, Forever 21 launched its first flagship store in the most crowed area of Hong Kong, Causeway Bay. Forever 21 is reportedly paying approximately CAD$2.0 million in rent per month for its prime location in Hong Kong, which is the highest rent paid by the California-based company. The location was originally leased to a local retailer, Giordano, for a rent of CAD$1.0 million per month. Why would Forever 21 be willing to pay close to double the rent?
A great location is an excellent way to build a strong brand. The convenient location contributed tremendously to Forever 21’s retailing success in Hong Kong by driving higher foot traffic volume and brand awareness for the store. The area of Causeway Bay contain a high percentage of segment that Forever 21 is primarily targeting, for instances, young women and men who are seeking to keep up with the latest fashion trend at an affordable price. In 2011, retail sale in Hong Kong grew by 25% where majority of the annual sale were driven by a new generation of wealthy mainland Chinese tourists. Hong Kong became their shopping paradise, and with no surprise, the newly opened Forever 21 benefited greatly from the boosted tourism. As the store is conveniently located on a pedestrian-friendly district across the busiest intersection in Causeway Bay, it allow Forever 21 to take up presence in a new market almost immediately. However, such central location require a burdensome amount of rental expense, which explain why the store is open till 1:00 AM every day of the week. The former CFO of Forever 21, Larry Meyer, explained that the intention of having a mega store in Hong Kong was to build a strong brand image and ultimately “serve as a gateway to China”. In my opinion, the store format and layout was also designed in way that cater to the local target segments. To compete with other fast-fashion retail competitors, design aids in the store’ relaxed feeling so customers can enjoy the clean, well-organized and easy to move venue. The store was filled with bold, bright colors and flirty materials. Although there is an overwhelming number of product options, the interior always focus on displaying the latest updated item. Although Hong Kong Forever 21 flagship store helped elevate shopping experience to a new level and created buzz for its brand, I personally think the risks associated with this flagship are still significant. It seems to me that the primary purpose of the store was to build brand rather than solely to generate profit, considering the massive amount of resources invested in the location selection process. In my opinion, the HK flagship store might face several challenges in the near future as retail sale witnessed a slowdown in 2015 due to the “Umbrella Revolution” that deterred Chinese tourists from coming to Hong Kong. As consumers begin to embrace the new convenience ways of online shopping and showrooming, retailers face further pressure in developing an ultra-efficient operating model that fulfill both omni-channel and in-store operational needs. However, I still believe flagship store is a strategic way for Forever 21 to enter into a foreign market, to announce its presence and to enhance business within an international market.
references:
http://www.wsj.com/articles/hong-kong-retail-slows-as-mainland-tourists-stay-away-1451368824
http://www.hongkonghustle.com/fashion/3342/forever-21-hong-kong-flagship-store-address-causeway-bay-hk-forever21-jardines-bazaar-cwb-apple-store-hysan-place-sogo-department-store-times-square-dfs/
http://www.realdealhk.com/2012/06/retail-review-forever-21.html
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