Forever21

1. Bay Bridge – Team 8 1 | P a g e
Memo
To: MARGARET ANDREWS
From: ALINA MOSKALEVA
ALEKANDRO MATHEU
DILUK PERERA
RENATA BERBERT DE CASTRO
RYAN ADAMCZAK
XUANZE LI

Date: 15 MARCH 2016
Re: FOREVER 21 ORGANISATIONAL BEHAVIOUR ISSUES

2. Bay Bridge – Team 8 2 | P a g e



Introduction

When looking at global companies in need of some help with their organizational
practices, our group found that the clothing store Forever 21 has some major issues. The
company was founded in Los Angeles, California in 1984 by Do Wong Chang. Over the past 32
years, they have grown to over 600 stores spread across North and South America, Asia, the
Middle East, and the UK. Their offerings include clothing, accessories and beauty products for
women, girls, and recently some stores ha?e added uev[s fashiov. They fous ov rivgivg high-
end clothing styles to the masses for discounted prices and changing out their styles quickly to
stay current. As of now, they employ over 30,000 people across their various brands including
Forever 21, XXI Forever, For Love 21, and Heritage 1981. The following report will use the skills
we have learned from this course to dig deep into the underlying corporate problems and how
we suggest the company address them in an effective manner.
The main issue the company needs to address is their poor treatment of their
employees. Everyone from part-time store salespeople and managers to the manufacturers all
ha?e ouplaivts agaivst the oupavy. They[?e eev iv?ol?ed iv uavy la?suits o?er the years
claiuivg that they arev[t payivg their euployees fair ?ages or arev[t gi?ivg theu fair hours.
This is believed to be a major reason that their staff turnover rates are higher than the industry
average. These trends are also leading to weak management because their euployees arev[t
staying long enough to be promoted within the company.
In our analysis we will highlight the main problems and make recommendations on how
Forever 21 can turn around their business before their sales really began to slide quickly and
they av[t reo?er due to tarvished reputatiov in employee relations.
Forever 21 forever unfair to employees
In 2001 an award winning documentary named ^Made in L.A._ met the public eye which
rocked the fashion world, showcasing 6 sweatshops operated by Latino garment workers
packing clothes for the world renowned trendy fashion retailer Forever ??[. Iv ????, Forever 21
settled the lawsuit stating that they will take steps to greater employee protection in the
future.

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Forever 21 employee problems started to become publicize again in 2010 when labor
bureau investigated one of the factories in Los Angeles following complaints of unfair employee
practices. The investigation ended with Forever 21 being fined for not compensating their
employees fairly and giving a warning not to maintain sweat shop work atmosphere in their
factory.
Factory employees complained that the factory conditions are not suitable for work.
Complains included no cooling system, 10-12 hour shifts without overtime payment, factory
canteen providing old food not suitable for consumption, restricted bathroom breaks,
restricted resting time, uncomfortable working spaces, strict supervisors and a hourly minimum
wage of $ 7.25, which was well under US federal labor law. All these sounds too bad to be true,
reminds us factory conditions back in industrial revolution.
Did you ever wonder the price employees at forever 21 had to pay for you buy trendy
clothing for such a cheap price tag?
In the 6 years since that incident, working conditions have not improved. Serious
allegations have been filed against Forever 21 during this period involving employing under age
students, overtime without payment, unsuitable working conditions, exploitive schedule
praties suh as Zov all shifts[ (???? November) and the most recent allegation being multiple
instances of racism and gender discrimination against female employees (2016 January).
Forever 21 cannot continue to let these allegations come into existence anymore.
Consumers are becoming more conscious about the products they buy. They do not make their
buying decisions solely on cheap prices anymore. Consumers expect companies to be socially
responsible. The unfair employee treatment can damage Forever 21[? reputation in the long
run to a point where consumers begin avoiding the brand. Forever 21 needs to understand
cheap price tags will not guarantee its existence forever!

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The overarhivg proleu of forever ?? is the oupavy’s uvethial ulture of igvorivg
employees and violating law for the sake of cost savings.

Unethical culture
The fashion industry had revolutionary success with the entrance of fashion retailers
such as Zara and H&M, their main idea being fast trendy fashion for an affordable price. Hence
their clothes were approachable to a much broader customer base, which in the past was
limited only to wealthy people. Forever 21 entered this attractive yet competitive market 32
years ago. Their unique value proposition was being cheaper than its competition, thus saving
on costs was its main focus. However, Forever 21 chose the wrong path to success. Rather than
achieving cost savings through operations efficiencies they decided to climb the ladder by
stepping on euployees[ shoulders and law itself.
Unethical policies of top management have been criticized publicly by media over the
years. However, it doesv[t look like the Forever 21 CEO or C level executives pay attention to
these complaints. Forever 21 has been heavily criticized for violating labor laws, maintaining
harsh working conditions, ignoring employee complaints and copy right infringements all for
the sake of maintaining low manufacturing costs.
According to Forbes, Forever 21 has been accused of more than 50 copy right law
violations. Diane Von Furstenberg, H&M, Anna Sui and Gwen Stefani are among the fashion
retailers who have sued Forever 21 for replicating their clothes designs and fabrics. Adobe also
accused Forever 21 for stealing its computer software to run registers.

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After all these years of abusing employees and breaking laws, unfair labor policies and
unethical business practices have been embedded into Forever 21 culture. They seem to ignore
principles of equality, fair judgement, honor and their overall ethical judgment.
Main threats for Forever 21
According to a recent survey done by 24/7 Wall Street, Forever 21 is ranked 4
th
among
the 10 worst companies to work for. From the 2000 employees involved in the survey only 28%
agreed they will recommend working for the company to a friend and employee satisfaction
rate is as low as 2.5 out 5.
There are serious implications of having such a bad reputation as an employer and it has
a huge impact on company performance. High staff turnover is a major threat that can hurt
Fore?er ??[s aility to compete with other world class retailers in the long run. Not having the
ability to retain valuable experienced staff is a huge expense. Low motivation, high
absenteeism. Finally, lack of employee loyalty to the company will lead to low company
performance, low quality products, process inefficiencies in the long run.
The negative cognitive attitudes employees hold against the employer could lead to a
critical problem of affective component of attitude and ultimately lead to serious behavioral
problem such as employees becoming inefficient, low job involvement, lack of organizational
commitment, disliking the management, sabotaging operations and ultimately leaving the
company. To come out of this whirlpool of doom Forever 21 has to take actions quickly before
they tarnish their reputation forever!

^Motivation forever_
Forever 21[s strategy should e to arouse euployee[s ivtevsity, persistence and direct
them towards achieving the oupavy[s[ goals. However, aligning company interests exactly
with employee interests is a hard task. They could use any of the methods or combinations of
these methods to attract, recruit, retain and motivate their employees, who are capable and
competent to give an edge to compete with global competition.

Extrinsic Rewards to motivate employees
Even though pay is not the major factor driving job satisfaction, it is one of the most
important. Reward plans can be an effective tool to grab the attention and focus effort of
employees.

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Maslo?[s Hierarhy of Needs theory emphasizes the basic human needs are hunger,
thirst, shelter and other bodily needs which could be satisfied only if a person has money.
Hence a decent pay is a basic requirement. The Two Factor Theory of Frederick Herzberg also
categorizes pay as a main hygiene factor. When this is adequately met, employees will not be
dissatisfied.
Currently Forever 21 is paying salaries below the industry average and it cannot
continue with the same strategy. It has to increase the salaries. However, salaries for any
company is a major expense for them and increasing the salary of its 30,000 employees will
create a huge burden on the company and it will not be able to continue with its low price
competitive position if they choose this strategy.
At this point Forever 21 has 2 options. First, they can outsource their manufacturing
operations to low wage countries. So that they could maintain their below industry average pay
levels. This is a strategy used by Walmart, who outsources their operations to China because
they pay below the average.
Second and the most effective strategy should be to implement a variable pay program.
Company can use one of these payment plans or a combination of these methods:
Piece-rate plan: Compensate according to units manufactured. This would motivate employees
to work faster and efficiently since their pay depends on the output.
Skill based pay: Employees will be compensated according to the skills they have or how many
jobs they can perform. This will allow the company to create a multi skilled flexible workforce.
Merit based plan: They could introduce this method to rest of the employees and
management, which means pay according to performance appraisal rankings. Caution should
be exercised when determining performance appraisal criteria. Criteria should be well defined,
linked directly with company goals and should eliminate any room for personal bias in
judgement.
Profit sharing plans: This is an effective method to get everyone on board to achieve company
success, since their pay will increase if company earns more profits, which will motivate
employees to work harder and sincerely for the company.
However variable pay will not be effective if employees do not believe putting high
performance would lead to rewards and which will satisfy personals goals ultimately.
Expectancy theory should be considered when determining variable pay programs. If the pay
depends on seniority or kissing up to the managers these programs will be weak and
demotivating.

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Variale pay is ovly a portiov of av euployee[s salary avd it is av effeti?e uethod of
retaining skilled employees in the organization. For them to attract and recruit skilled
individuals from the job market they will need to increase the basic salaries as well in the long
run.

Intrinsic rewards to motivate
Intrinsic rewards can satisfy higher level needs of individuals according to Hierarchy of
Needs theory, as it satisfied social needs, esteem needs of self-respect, achievement, status,
recognition and self-actualization needs. These are motivational factors according to two factor
theory.
Forever 21 should use these theories along with concepts of task identity, skill variety,
task significance and autonomy to create a meaningful workplace where employees will feel
they are performing a valuable, important, and worthwhile duty at their job. The task itself
should be redesigned to motivate the individual to work harder and efficiently.
Job rotation: Over routinization of work could lead to demotivated employees due to boredom
and feeling of insignificance. Forever 21 should periodically shift employee tasks with similar
skill requirements to eliminate such negative attitudes. And this will allow the company to
create skill variety and a flexible work force.
Job enrichment: Expanding the job scope by increasing the degree of workers[ job roles. The
company could combine tasks to create a bigger role for the employee making them feel more
important and significant. Another technique is employee mutual assistance programs.
Experienced workers should be given the responsibility to help new recruits. This will motivate
the experience worker and retain them in the organization. And such an environment would
promote employee affective commitment. Good social relationships can make even the most
monotonous job fulfilling.
Employee involvement: The company could use employees input to increase their commitment
to achieve organizational goals. Company should engage workers when management needs to
make decisions. However Forever 21 cannot take each individuals[ opiviovs when making
production or sales decisions. Hence they could implement a representative participation
management style. Employees will be represented by a selected group who will participate in
decision making processes. These employees will voice out their ideas and concerns in the
process.
The above methods would require managers at Forever 21 to seek employees as theory
Y individuals who are ready to learn and seek responsibilities. Care should be taken when

8. Bay Bridge – Team 8 8 | P a g e
utilizing these methods though. Job enrichment strategies are individualistic by nature; hence it
would not work as effectively in a collectivistic culture compared to an individualistic culture
such as USA. They should be careful when they implement these strategies to their factory
workers in Asia.
Promotion opportunities: The Expectancy Theory could also be used to motivate employees to
exert more energy into their task. Managers should explicitly mention according to what
criteria performance will be appraised, and should specify what will be the reward for high
performers. Promotion opportunities is a major factor for employee satisfaction. If the
company can persuade employees to believe they will be promoted if they perform well
according to performance metrics, company could expect to receive high level of commitment
from the employees.

Safer working conditions
The working environment has a significant effect on employee satisfaction. Maslo?[s
Hierarchy of Needs Theory categorizes human’s need for protection and security from physical
and emotional harm as a basic need. And it is a hygiene factor as well according to the 2 Factor
Theory, which would stop individuals from becoming dissatisfied.
Forever 21 factories have always been criticized for their unsuitable working conditions
such as hot environments, physically uncomfortable working stations in the factories. The
company is currently having a hard time retaining its skilled workers which is no surprise given
the working conditions. They need to understand that such physical demands will lead to low
job satisfaction levels, ultimately resulting in low quality products which would destroy its
competitive position in the global market. Forever 21 should do major upgrades to their
working conditions making employees feel safe and comfortable. They can start slow for cost
reasons. We suggest they make a long-term plan to tackle this issue head on.

^Incorporate ethics into culture_
In 2015, a documentary named ^The True Cost_ made a huge buzz in the world exposing
subpar working conditions of fashion retailers such as Forever 21. They have been fined and
warned by authorities on more than few occasions for violating labor laws and copy right laws.
This sort of ethical gaffes has the ability to turn away conscious customers. The CEO,
management, and HR department all need to identify sooner rather than later that its unethical
ulture pose a ig threat to the oupavy[s future gro?th avd first of all start y aidivg the la?.
Incorporating ethics into a company like Forever 21 is not an easy task since the root cause of

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the problem begins with the company founder even though their website clearly states that
they value their employees and his picture is all over it.
Establishing a ^Win-Win_ culture
The culture at Forever 21 is influenced largely by its founder Do Wong Chang. The
competitive nature of the CEO, Do Wong Chang is what made this business such a success in
the past. His values, beliefs, assumptions have been incorporated into the company over the
years. His aggressive style of doing business has been accepted by the management as the
correct way in pursuing low cost strategies.
Top management at Forever 21 needs to understand that they cannot keep on
strangling the workers throats to get things done for a low price tag if they want to continue
being successful. Their current company policies about low compensation to employees can
lead up to a destructive conflict. Maybe in the short run the company will win and employees
lose. However, in the long run they will have to face severe consequences such as of weak
management, high staff turnover, employee strikes which would lead up to a ^lose-lose_
situation. Thusly, Forever 21 top management should adopt a ^win-win_ culture where workers
are satisfied with salaries and working conditions. With this new approach company will be able
to increase employee loyalty and commitment to the organization.

Formalization-Written rules
Forever 21 culture shows characteristics of a weak culture where the orgavizatiov[s ore
values are not intensely held and widely shared by members in the organization. Having a
strong culture with the right attitudes can create employee commitment, involvement and
loyalty to the company.
Formalization is an effective way to create a positive culture of orderliness,
predictability and consistency in a company. It is the same as having a strong culture, the only
difference being the need for written documentation. Over time with the adoption of the new
rules, members will get used to the new thinking pattern and gradually these rules will be
embedded into the culture.
Written rules let everybody know what to expect, what to do, how to behave and how
they will be evaluated. This makes the process clear and appear fair to employees. Rules should
expliitly uevtiov oupavy[s ore ?alues, ethics, codes of conduct, policies to treat employees
fairly, management decision making process and about issues such as conflict resolution.

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Rules should be specific and clear, since vaguely written rules is an excuse for
companies to stay white to the public and get away from internal issues. Currently in the
company official website they talk about values such as corporate social responsibility and
caring for employees. However mere words are meaningless unless CEO, top management and
HR policy makers fully commit to the rules they establish. As soon as they adopt, gradually the
rules will be internalized and widely accepted. This is the best for Forever 21 to internalize
ethics into the company culture.

References:
http://www.forbes.com/companies/forever-21/
http://www.forever21.com/Company/About.aspx?br=f21
http://truecostmovie.com/
http://www.simplypsychology.org/maslow.html
http://247wallst.com/
http://www.valuebasedmanagement.net/methods_herzberg_two_factor_theory.html