The failures of J. Crew and Neiman Marcus highlight the importance of applying a Cy-Fi lens in today’s market

Summary

NYT Times story explains how the fall of two retail giants—J. Crew and Neiman Marcus stemmed not only from the pandemic but also from the involvement of private equity firms and the financial over-engineering they deployed. The longstanding weaknesses of some traditional bricks and mortar retailers which include belated or poorly executed digital strategies are also directly related to an inability to make big investments due to being overleveraged. These weaknesses were further exposed by the pandemic, resulting in the recent bankruptcy filings.

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Analysis

This story is a case study in why applying a Cyber-Financial lens to companies is a better way to understand which companies are more likely to win and which are more likely to lose amid the current crisis. Whilst J. Crew and Neiman Marcus tell the story of retail losers, the Cyberhedge cyber governance indices have illustrated the powerful impact that cyber governance has at the macro level. On both regional and sector levels, high-performing 5-Star rated companies vastly outperform poor-performing 1-Star companies across all sectors and regional markets.

Alongside solid financials (good financial reserves, lower leverage, general lack of over-financial optimization), the strong management of digital technology (the Cyber)—including well-executed digital transformation strategies—is an ever more important factor in predicting a company’s market performance.

This is especially true today. Why? COVID‑19 has accelerated digital transformation two years in the last two months. The pandemic is a catalyst for exposing companies with poor digital transformation strategies like J. Crew and Neiman Marcus. Their failures amid the crisis were more probable because they did a poor job executing on digital and did not have the financial resources to remedy the situation (thus the importance of the Financial). The same could be said of Macy’s, a 1-Star company that has appeared in our Cyber Governance Alerts for similar reasons and is also unlikely to emerge from the crisis a winner.

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Denis Bolshakov

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These first ever benchmarks prove good cyber governance matters to shareholder value. They measure stock market performance of companies with good and with bad cyber governance scores. Scores are based on Cyberhedge’s proprietary cyber governance rating methodology. Market performance is tracked by an independent firm. The results show that companies with good cyber governance outperform their peers in US, UK, and EU markets.

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