After shutting all of its 44 stores in Canada in 2019, Los Angeles-based fast-fashion retailer Forever 21 has announced that it is again operational in Canada. This time around it won’t be with physical stores however — Forever 21 is launching a ‘localized’ e-commerce website targeting Canadian consumers. Given the retailer’s lack of success in Canada when it had brick-and-mortar stores, it’s questionable if having an online presence will be worth the effort and online returns could become a significant issue.
The rationale is that the ‘localized’ Canadian e-commerece site will drive sales while again growing Forever 21’s market share in Canada after its exit from the market several months ago. “E-commerce forms a large chunk of the profitable core of our operations and as part of our new global strategy, Forever 21 will leverage Global-e’s technology to offer international customers an outstanding online experience,” said Alex Ok, President of Forever 21.
“To engage digitally savvy consumers today, retailers need to invest in creating a unique online experience that speaks directly to the shopper. With the continued increase in demand from international shoppers for our brand, we recognized that an advanced global online shopping experience is a fundamental part of our future growth,” he went on to say. “The seamless localized shopping experience our consumers around the world can now enjoy is a vital milestone in our mission to use the latest retail technology to bridge the online gap between the convenience of e-commerce and the local experience of in-store.”
Forever 21 partnered with cross-border e-commerce solutions provider Global-e to launch the international offering, which includes localized websites for the Canadian market as well as sites for Asia, Asia/Pacific, and Latin America. The Canadian website accepts local currency. As part of the purchase process, duties and taxes will be calculated on the site with a prepayment option. Shipping rates will be “attractive” and free shipping will be offered over a specified threshold, according to a news release.
As part of the online initiative, Forever 21 will be able to tailor its offerings “according to its marketing strategy and business goals, including running market-specific promotions,” according to the release.
Matthew Merrilees, the North American CEO of Global-e, explained how “more than 80% of Canadian online shoppers are now purchasing from international retailers. Brands like Forever 21 understand that in order to boost global sales, it is crucial to create an online presence that is fully localized to each individual market.”
Cross-border shopping often includes dues and taxes in Canada, which could pose an issue as Forever 21 looks to gain market share with other fast-fashion retailers operating in Canada. Canadians shopping online may buy products costing up to $20 from international online retailers without having to pay sales tax or duties — also known as the de minimis threshold which is expected to increase with a ratified free trade agreement.
As a comparison, the de minimis threshold for those living in the United States is $800. Retail Council of Canada has lobbied against raising the threshold for Canadians in an effort to protect Canadian retailers during an already challenging time which includes international brands entering the market at an unprecedented rate.
Forever 21 closed all of its Canadian stores in November of 2019 after its US-based parent filed for bankruptcy. In total, about 900,000 square feet was vacated, though not for long — Montreal-based fashion conglomerate YM Inc. scooped up many of the leases on a temporary basis to open its own brands including Urban Planet and West49. Urban Planet’s fashion offerings are also considered to be ‘fast fashion’ in terms of pricing and style.
When Forever 21 operated stores in Canada, many locations were underperforming. Sandy Shindleman, CEO of Winnipeg-based real estate company Shindico, told 680 CJOB radio in November that the 37,000-square-foot Forever 21 store at CF Polo Park had annual sales between $2 million and $3 million dollars. That means the store’s productivity was less than $100 per square foot in a shopping centre that boasts annual sales per square foot approaching $900 for non-anchors, according to a recent Retail Council of Canada study.
Another landlord told Retail Insider in November that the Forever 21 store in one of its shopping centre properties had less than $2 million in annual sales, in a shopping centre where many retailers see per square foot sales exceeding $1,000 per square foot annually.
Not having physical stores may pose a challenge for Forever 21 in Canada as it launches its local e-commerce site. Consumers will not be able to try product on, and the lack of instant gratification from buying in a physical store could pose a challenge to the retail venture as well. And if consumers do order product to try on at home, the rate of returns could again pose challenges depending on terms. Many retailers end up destroying returned product rather than going through the trouble of checking and attempting to resell it, and consumers are becoming increasingly aware of such issues.
As well, studies have shown that having a physical presence leads to a boost in online sales for retailers. In 2019, Retail Insider reported on an International Council of Shopping Centres report which discussed the ‘halo effect’, where web traffic to a retailer’s online store sees a boost when a physical store opens in a new market. Not having physical stores in Canada could result in an ‘out of sight out of mind’ situation with Forever 21 in Canada unless extensive marketing efforts are launched to grab hold of Canadian consumers.
Forever 21’s re-launch in Canada comes at a time of unprecedented competition amongst fashion retailers. As mentioned, YM Inc is expanding its presence to include most of Forever 21’s former Canadian locations, and other fast-fashion and value-priced retailers continue to expand within Canada.
Swedish fast-fashion retailer H&M has been opening stores yearly in Canada in an effort to gain market share, as has Spanish chain Zara and Japanese retailer Uniqlo. At the same time, value-priced retailers such as TJX Group’s Winners and Marshalls banners have been expanding further into Canada, offering designer product at discounted prices. Further disruption is expected into 2020 and beyond as second-hand clothing purchasing grows at a rapid pace, while clothing rentals are predicted to be the next bing thing.
Forever 21 will no doubt have an uphill battle to gain market share in Canada despite its best efforts to be a key online player after its brick-and-mortar retreat last year.