Fashion retailer Forever 21 plans to close all 44 of its stores in Canada along with 168 in the U.S. as the chain undergoes bankruptcy proceedings.
The Los Angeles-based chain filed for protection from its creditors under Chapter 11 of the U.S. bankruptcy code on Monday. A similar filing is underway under the Canadian equivalent, the Companies’ Creditors Arrangement Act.
The plan could see the chain maintain stores in the U.S., Mexico and Latin America, but an “orderly wind-down” of all Canadian locations is underway, the chain said in a release.
“Forever 21 has made the difficult decision to discontinue further financial and operational support for Forever 21 Canada as we reposition the brand and global business to adapt to the current retail environment,” the chain said.
“All 44 Forever 21 Canada stores in Canada will close before the end of the year, and we have plans to liquidate our store inventory in the near term.”
16% of sales online not enough
The chain, founded in 1984 and boasting 549 locations and more than 28,000 employees right now, is the latest to tumble into the pitfalls that have brought down numerous retailers in recent years: dwindling sales and growing debt loads at a time when online shopping is on the rise.
Bankruptcy filings suggest about 16 per cent of the chain’s sales came from its app or online properties, but that wasn’t enough to offset problems elsewhere.
Farla Efros, president of HRC Retail Advisory, said that’s just not good enough to survive and thrive in retailing today.
“Most retailers today are … up to 25 to 30 per cent,” Efros said. Typically every sale online cannibalizes one you may have made in store, which is why e-commerce sales have to be much higher than they are at the chain to be sustainable.
“You really have to have that visibility because every customer counts.”
The chain was a pioneer of the “fast fashion” trend, where retailers such as Forever 21, H&M and others can quickly take runway looks and produce them affordably for the masses. That was a licence to print money for a while, Efros said, but the game has changed. It’s still possible to make money doing that, but Forever 21 failed because their costs were just too high, she said.
That particular fate may have been sealed some time ago. The chain started expanding in a major way when U.S. department store chain Mervyn’s liquidated more than a decade ago. Forever 21 moved into some of those prime locations — in the process committing to huge square footage more akin to a department store than a nimble clothing store that sells out of the latest fashions as quickly as it brings them in.
“It shouldn’t be a department store, it should be a one-floor store,” Efros said. Those stores are “super unproductive because you have to fill the space with clothing and people.
“It’s really a real estate issue… the fixed costs become so astronomical that you can’t make a dime.”