Essa Sample on The Failure of the Forever 21 Empire

Presently, most companies are failing as a result of bad decisions by their management. Such decisions include poor lines of communication, misadvising the shareholders, inappropriate locations, and accumulating more credit than the company can manage to handle. The poor management of company resources is also one of the major causes of failure that has seen many companies fail to meet shareholder or consumer expectations. In most cases, poor communication is as a result of managers being inapproachable by the employees who may have better ways to transform the company (Radovic & Salamzadeh, 2018). Being a family business, Forever 21 experienced mismanagement as a result of trust issues from its proprietors. Mr. and Mrs. Chang felt that their opinions had to prevail, and anyone with a contrary suggestion was an enemy to the growth of their entity (Berfield et al., 2020). Despite their ambition to expand being more than their company finances could handle, the company felt that their decisions were accurate, and the same is among the major reasons for the failure of the firm.

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If I were a manager at Forever 21, there are some decisions and strategies that I could have deployed to ensure that the company does not shrink or get to bankruptcy (Berfield et al., 2020). One of the strategies that could have been put in place is to ensure proper communication between the Chang family, departments, and employees. Poor communication is one of the lapses of many entities (Radovic & Salamzadeh, 2018). A such, the senior-level management cannot identify any anomalies occurring within the departments. In companies where there are open channels of communication, problems are minimal since the employees feel that their opinions are acknowledged. Thus, effecting proper and direct lines of communication is one of the things that I could have done as a manager to ensure that the company overcomes some of the outcomes of its bad decisions.

Another way that I could have used to ensure that the company outcomes are different is by exercising financial management. One of the reasons why the company registered poor performance is due to the lack of financial prudence (Berfield et al., 2020). A such, the company was fast expanding and paying high rent rates without analyzing the implications of the same on the sustainability of the entity. Given that the company is in a dynamic industry, financial management is crucial in ensuring that the assets are more than the liabilities (Szydelko & Biadacz, 2016). As a manager at Forever 21, I would have ensured that each department considers financial management to ensure that the growth of the entity is more than its expenses. Financial management is also important since it helps in mapping out scenarios on how businesses should relate with other stakeholders. Ideally, it assists an entity in revealing its actual financial position while still maintaining business relationships.

Securing credit lines using inventory is one of the mistakes made by the management of Forever 21. In most instances, securing credit with current assets has an impact on the financial structure of an organization. Enterprises usually suffer from the lack of appropriate financing channels, and these financial gaps can be covered using means such as requesting lending from suppliers (Cole & Sokolyk, 2018). In such a scenario, the business would request for a business trade credit whereby they would benefit from their good relationships with other stakeholders. When compared to the business bank credit, the trade credits are more favorable since they can be regulated and monitored according to the capability of the firm (Cole & Sokolyk, 2018). Further, one can notice when the firm is struggling. In the case of Forever 21, a business trade credit would have allowed their suppliers to notice they were struggling, and the same could have allowed them to borrow within their limits and to use the appropriate credit lines. Therefore, pursuing business trade credit is one of the lines that I could have used to secure credit for the company.

Conclusively, it suffices to note that the problems at Forever 21 could have been prevented by effective management. One of the lapses that were experienced within the company is poor communication whereby there was no interaction between the owners of the entity, their managers, and the departments within the entity. A such, there was no clear definition of objectives. The lack of a clear communication channel makes it difficult to implement change since even the employees at the managerial level are reluctant to give their input. Thus, installing proper communication channels would allow the breakage of unnecessary boundaries between the administration and the subordinates. Another challenge that Forever 21 was experiencing is the lack of financial management. Effective financial management is necessary since it allows entities to manage their resources prudently. Financial management helps institutions make accurate investment decisions and adjust to the extremes of the external environment. Regarding their credit line options, settling on trade credits was more favorable since the same is easy to monitor, and relevant lenders such as suppliers could have issued an opinion based on the reaction of the business to its rapid expansion. The same would have saved Forever 21 from poor performance as a result of unmonitored growth and dwindling returns.

References

Berfield, S., Ronalds-Hannon, E., & Coleman-Lochner, L. (2020). The Failure of the Forever 21 Empire. BSC. Retrieved August 25, 2020, from https://bsc.peregrineacademics.com/#/fullarticle/the-failure-of-the-forever-21-empire/5066

Cole, R. A., & Sokolyk, T. (2018). Debt financing, survival, and growth of start-up firms. Journal of Corporate Finance, 50, 609-625.

Radovic Markovic, M., & Salamzadeh, A. (2018). The Importance of Communication in Business Management. In Radovic Markovic, M., & Salamzadeh, A.(2018). The Importance of Communication in Business Management, The 7th International Scientific Conference on Employment, Education and Entrepreneurship, Belgrade, Serbia

Szydelko, A., & Biadacz, R. (2016). The Role of Financial Statement in Performance Management. Modern Management Review, 21(23 (4)), 205-214.