Levi’s is accelerating digital transformation in face of declining revenues

Summary

Following a reported 62% drop in revenue in Q2, Levi’s is outlining the steps it is taking to accelerate its own digital transformation amid COVID‑19. Steps include investing in online sales growth and direct-to-consumer sales in addition to scaling down physical store growth from the planned 100 this year to 70.

CEO Chip Bergh’s comments during the company’s recent earnings call captured this strategy well.

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Analysis

Levi’s is recognizing the need to rebalance its own bricks-and-mortar store and digital growth, as existing plans for digital transformation have been accelerated as they have across all companies. For retail companies, even for brands as strong as Levi’s, executing well on a digital transformation is a matter of survival. The steady stream of bankruptcies serves as a constant reminder of this fact.

As we have highlighted, the companies that have been hit hardest since the pandemic and have underperformed the most are those that were not executing well on a digital strategy prior to the lockdowns and also tended to have weaker financials—fewer financial reserves, higher leverage, and too much over-financial optimization. The dangers of too much financial optimization are among the factors that led to the downfall of J. Crew and Neiman Marcus.

The increased digitization of a company’s operations and sales process also put a greater emphasis on security. In the past, the most important cyber risk for a retailer like Levi’s was a significant customer data breach. Now the risk of a significant ransomware incident in which online sales could be slowed or ground to a halt poses a much greater financial risk.

The likelihood of Levi’s succeeding with its own accelerated digital transformation depends upon a combination of the company’s financial strength and its ability to effectively secure the increasing amounts of technology it is now utilizing.

Cyberhedge’s Cyber-Financial (CyFi) lens provides a window into companies future prospects because of the mutually reinforcing link between a company’s financial and cyber health. Levi’s can only continue to grow its digital presence and improve the ‘seamless digital to physical customer experience’ (and thus shore up its revenue growth for the future) if it has the resources to adequately protect the technology and data that underpins it.

Still just a year into its existence as a public company, Levi’s has had a challenging 2020 in the markets. But if it executes well on its digital transformation, the company and its shareholders will most likely be rewarded for it. In the US and Europe, 4 and 5-Star companies (including those in the consumer discretionary sector) continue to outperform the broader market and 1 and 2-Star companies by a wide margin.

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Denis Bolshakov

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