Can young shoppers quit fast fashion?
That was the quick question universally posed in response to the hoped-for restructuring of the toss-away-clothing chain Forever 21. Hoped for by the family that fully controls the company, that is.
But here in the world of business reporting, the travails of the Los Angeles-based privately held firm open a cavern of insights into the modus operandi of the global chain, and the place that Canada occupied within it. Like any autopsy, it isn’t pretty.
Picking through court filings in Canada and the U.S. we see that the vast majority of the company’s Canadian stores were not profitable. The Canadian stores have collectively recorded yearly losses since 2014. Occupancy costs absorbed a disproportionate amount of revenue, the firm complains. (Ivanhoe Cambridge, Cadillac Fairview and Oxford Properties hold the majority of the leases.) In his declaration to the U.S. Bankruptcy Court in Delaware, Forever 21’s chief restructuring officer Jonathan Goulding labelled Canada an “albatross,” alongside the company’s European operations. Solution: ditch the underperforming outposts; shrink the footprint; emerge from bankruptcy protection.
Goulding’s declaration takes a rather curious narrative turn as he explores the “garment for every girl” enterprise that, for its husband-and-wife founders, is “a story about family and the ‘American Dream.’” Why Goulding had to look to Investopedia for a definition of the American Dream I cannot say, but let’s accept that the “belief that anyone, regardless of where they were born or what class they were born into, can attain their own version of success in a society where upward mobility is possible for everyone” just about captures it.
And let’s accept that the dream was delivered to the company’s creators, Jin Sook and Do Won Chang, who emigrated to the U.S. from South Korea in the early 1980s. In 1984 the first store, initially called Fashion 21, was opened in Los Angeles. This reads strangely for a court filing, but here goes: “Living in Tinseltown, Mr. Chang quickly identified 21 as the most enviable age; children and young adults saw 21-year-olds as having the independence they so desired and older adults fondly remembered being 21 and unburdened by life’s obligations and responsibilities. In 1987, Mr. Chang rebranded the company as ‘Forever 21.’”
The chain grew and grew and grew until revenues exceeded $4 billion (U.S.). Sales last year landed about a billion dollars short of that. Debts outstanding: $228 million.
But come closer. What did the pursuit of this dream deliver to Canada, where the chain grew to 44 stores? Twenty-two of those are in Ontario, by far the largest Canadian presence for the chain, with Quebec, at eight stores, running a distant second. The employee count at the time of the Canadian subsidiary’s filing last weekend stood at 1,953, with 1,067 in Ontario.
Here’s a number that won’t surprise followers of the retail industry: approximately 1,600 workers out of the total Canadian head count are part-time and paid hourly. A mere handful are salaried.
F21 Canada notes that it did establish a registered retirement savings plan for employees. One small catch: “F21 Canada does not make any matching contributions to the group RRSP.”
F21 U.S. selected the products for F21 Canada. The U.S. negotiated with suppliers. All back office support and “overall corporate guidance functions” were run from the U.S. The Canadian operation is in arrears to U.S. HQ to the tune of $67.4 million. There is no senior management in Canada, the company’s Canadian filing states blankly. Brad Sell, a California-based executive, was named chief financial officer of the parent company in March and became CFO of the Canadian operations two weeks ago: in other words, he’s the windup guy for Canada. All 44 stores are scheduled for closure. The proposed liquidation date is Oct. 8.
The Canadian subsidiary operated with a lone director, Do Won Chang. Half a dozen trusts controlled by the founders hold 90 per cent of the equity in the parent company.
The consumer can gain little insight into an operation that sees itself as the leader in fast fashion. Scanning the top 50 list of the company’s unsecured creditors, the vast majority of product was manufactured in South Korea and China, with the largest single claim, at $13.4 million, payable to a knitwear manufacturer in Seoul. Yet the company provides no specific consumer-facing transparency into its supply chain, by which I mean disclosing the results of factory audits, supplier by supplier. Forever 21 manufactures none of its own merchandise.
The company’s social responsibility commitments are woefully inadequate, at least according to its website. Forever 21 did not respond to a query as to whether this online information is up to date. But suffice it to say that a statement of the company’s social responsibility commitments, citing small donations made in 2016, should not be topped by a banner offering 30 per cent off fall “must haves.” Offering a 15 per cent discount on disposable duds to shoppers who bring in old duds misses the point.
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The point is: buy less; buy better.
I’ve been carping about garment manufacture and supply chains and corporate responsibility for decades. As Forever 21 exits Canada we appropriately feel badly for those employees now out of work. What the autopsy reveals is a case study that should be taught in high school examining what businesses contribute, and what they take away.
The company is quick to point out that while it will no longer have a bricks-and-mortar presence here, shoppers are welcome to explore the company’s offerings online. Shoppers should think twice. Being 21 forever was only ever just a dream.