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Forever 21 to closes Canadian stores, most of which were unprofitable

The sign for clothing retailer Forever 21 is seen outside the store in New York City, U.S., September 12, 2019. REUTERS/Shannon Stapleton

Forever 21 Inc. will shutter all 44 of its Canadian stores – the vast majority of which are unprofitable – as the fast fashion clothing chain files for bankruptcy in a retail environment upended by e-commerce.

In a statement released Sunday, Forever 21 Canada’s chief financial officer Bradley Sell called the decision to wind down operations and launch a court-supervised liquidation process “not easy to make.”

“After considering numerous options, we have made the difficult decision to discontinue operations in Canada. While this decision was not easy to make, we believe it is the right one for Forever 21 Canada,” Sell said.

“We had hoped for a different outcome, but after years of poor performance and challenges set forth by the headwinds facing the retail industry today, our Canadian operations are simply no longer economically viable.”

Forever 21 Canada, which is a subsidiary of the Los Angeles-based clothing company, has stores in Alberta, British Columbia, Manitoba, Ontario, Quebec and Nova Scotia and employs approximately 2,000 people.

The company initially opened locations in Canada in 2001 and called the expansion “promising” in court documents filed with the Ontario Superior Court of Justice. However, in the eighteen years since launching in Canada, the documents say that Forever 21 “has struggled to maintain profitability, and the vast majority of its stores are unprofitable.”

According to court documents, the business in Canada is “wholly reliant” on its parent company in the U.S. for operational and financial support. After “a thorough review of Forever 21 Canada’s poor performance and negative cash flow”, and considering the bankruptcy protection proceedings launched in the U.S., the parent firm decided it was in the best interest to immediately stop financially supporting the Canadian subsidiary.

“Without further financial support from Forever 21 U.S., Forever 21 Canada is unable to meet its liabilities as they become due and is therefore insolvent,” the court documents state.

Forever 21 Canada was granted protection under the Companies’ Creditors Arrangement Act (CCAA) from a Toronto court on Sunday. The retailer said it will begin winding down operations, with PricewaterhouseCoopers Inc. overseeing the process, which will include a full liquidation.

At the same time, Forever 21 filed for bankruptcy in the United States in the hopes of reorganizing its business and continuing operations in the U.S. and Latin America, while closing down the majority of its international locations. Forever 21 said in a statement that “this restructuring will enable the company to become a stronger, more competitive enterprise, and a more viable company that is better positioned to prosper for years to come.”

Forever 21 has been struggling for years in a rapidly changing retail landscape that has seen customers turn to e-commerce for their shopping needs. The company also specializes in fast fashion, which has been the source of widespread backlash recently over concerns about sustainability and the environmental impact of such lower-quality, mass produced merchandise.

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