Levi’s plans to accelerate e-commerce and invest in AI initiatives to help reduce COVID-19 pain

Profile picture for user ddpreez By Derek du Preez July 8, 2020
Summary:
Denim giant Levi’s revenues for the quarter fell by $800 million compared to last year, but CEO Chip Bergh is confident on the company’s post-COVID-19 future.

Image of a pair of Levi’s jeans
(Image by Ginu C Plathottam from Pixabay )

Levi's suffered huge losses in the three months to 24 May as a result of the global COVID-19 lockdowns and resulting store closures, which has resulted in CEO Chip Bergh announcing some 700 job cuts. However, the global denim brand is confident about its future success - citing an acceleration in digital investments and also favourable consumer trends it is seeing in the market.

The retail sector has been hit hard by the Coronavirus pandemic, with many companies within the sector reporting significant losses and staff cuts. As economies begin to reopen and as countries continue to battle against containing COVID-19, retailers are considering the balance of their physical vs digital investments to manage future demand.

As my colleague Stuart Lauchlan has noted time and time again whilst tracking the variations in the retail fallout, some companies just did not have their digital defences in place to manage the impact of COVID-19.

However, Levi's is confident about its investments to date and its plans for digital going forward, which include modernising its processes, adapting its omni-channel approach, as well as investing in data and AI. Commenting on the pandemic, Levi's CEO Chip Bergh said:

This quarter has been defined by the coronavirus pandemic and the economic fallout from it which dramatically impacted our business...with virtually all of our retail stores and most wholesale doors closed.

I am proud of how the team stepped up in response, prioritizing consumer and employee safety, while accelerating our activation of key e-commerce and omni-channel capabilities, proactively cutting costs, smartly managing cash and finding more innovative ways to connect the Levi's brand with its fans.

I am optimistic and confident that we are ideally positioned to win in the post-COVID world.

Levi's reported a loss of $364 million in the quarter, compared to a profit of $29 million in the same period last year. Revenue dropped to $498 million, compared to $1.3

Building connections

Going forward Bergh said that Levi's is focused on structural improvements in its cost base to drive stronger EBIT margins, and so is reallocating resources to high ROI investment areas such as automation, AI and digitization.

The chief executive said that the highlight for the quarter was the company's e-commerce business, which grew 25% over the period. In May e-commerce grew by 79%. Bergh said that he expects the business' e-commerce division to be profitable for the full year. He said:

Let me highlight four key points for us as we've navigated the pandemic and early recovery. They are first, continuing to build our brand and deepen our connection with consumers. Second, investing in and accelerating e-commerce and omni-channel capabilities. Third, accelerating the pace of digitizing the company and leveraging AI and data; and fourth, driving product newness and excitement.

On depending the relationship with consumers, Levi's has been engaging virtually at "unprecedented levels" on social media, as well as focusing on DIY customisation and immersive stories on its blog.

It has been using Instagram live to stream performances from artists and is also piloting new commerce channels that are "particularly relevant with Gen-Z". For example, Levi's has launched on TikTok's new ‘shop now' program in the US, partnering with influencers to drive sales. Bergh added:

Our recently launched mobile app represents the evolution of our online shopping experience aimed at fostering and growing the brand's connection with our consumers.

Online enrollment rates have nearly doubled since entering shelter in place and due to strong response, combined with the increased importance of building deeper connections with our fans, we just rolled our loyalty program nationally.

Omni-channel front and centre

Levi's has used its omni-channel investments to try out new models of delivery for consumers during the Coronavirus pandemic, which Bergh highlighted during a call with analysts. For example, during closures stores were turned into micro fulfilment centres to carry out online orders and move through inventory. Some 30% of online demand was met by stores in the month of May.

Another feature has been curbside pickup, which is now live across 80% of the company's stores too. Bergh added:

We launched a new virtual concierge offering consumers the chance to have one-one-one interactions with the stores that see it in the comfort of their own home and we are seeing strong conversion rates. This work has continued into Q3 as we pulled forward the rollout of buy online, pickup in store in 20% of our stores and planned to complete the rollout to the remaining U.S. stores in the coming months.

We have begun testing appointment scheduling in select stores enabling consumers to skip the line and get immediate access into the store and in the next few weeks we will begin piloting same day delivery for our consumers. This program, along with others that we are exploring will offer our consumers several forms of contactless retail shopping expanding the way consumers can shop with us.

This sort of agility in response to COVID-19 is what has been lacking across other retails, which is what is fuelling Levi's future confidence. In addition to this, Bergh sees consumers opting for brands that aren't focused on fast fashion and instead favour sustainability.

A data-driven future

Further to the above, Levi's wants to invest heavily in its data capabilities. Bergh said:

The third focal point has been to accelerate our overall digital transformation and leverage the use of data, analytics and machine learning in more aspects of our business.

We are applying a data-driven approach to determining appropriate promotion levels. As just one example, during a major e-commerce promotion event in Europe we were able to amplify revenues, units sold and profits four times what we did in the previous year. We are also using AI in our U.S. stores to ensure we are optimizing margins in fulfilling orders in the most efficient ways, which has been critical with the recent rollout of ship from store.

And we are using AI to enable personalized benefits in our newly launched loyalty program, further cultivating loyal fans.

However, in the back-end, Bergh said that the company has rebalanced its IT portfolio and is cutting discretionary and non-urgent projects, instead focusing on its "digital transformation to drive a better consumer and employee experience". But the company is continuing with its ERP rollout plans as it believes this will help digitize all processes.

My take

By and large it is too soon to judge how well retailers will fare once the COVID-19 pandemic is over (whenever that may be). However, some retailers have proven that they can be agile and adapt to the new abnormal as best as they can to ride out the storm, whilst also preparing for a wildly different future. Levi's is making the right noises about how it plans to do this and sees favourable consumer trends to support its future. Time will tell...