Levi Strauss & Co.’s sales dropped 62% in its second quarter of 2020 and the apparel retailer said it will cut around 700 corporate jobs, roughly 15% of its corporate workforce, in areas that are seeing a revenue drop.
It said the move should generate annualized savings of $100 million and it will continue to invest in AI and the digitization of Levi’s.
“The pandemic is accelerating retail landscape shifts and consumer behavior in ways that play to the strength of the Levi’s brand,” said Chip Bergh, president and CEO of Levi Strauss & Co. “And we are doubling down on our digital transformation, incorporating the power of AI and data science, and leveraging our iconic brands to have an even stronger focus on Gen Z and sustainability.”
The savings from the corporate cuts will begin in the retailer’s fourth quarter, EVP & CFO Harmit Singh said on the company’s earnings call.
“We are cutting areas that are seeing a revenue drop and, as Chip said, these are largely corporate folks,” Singh said. “We continue to invest in areas that will drive growth which largely are focused around digitization, investing in AI and in other principles or disciplines that will accelerate the digitization of the company.”
While revenues decreased due to the temporary closure of stores as a result of the COVID-19 pandemic, they were partially offset by the company’s e-commerce business which spiked 25% for the quarter, with sequential month-over-month acceleration to nearly 80% growth for the month of May.
Levi’s also launched a new virtual concierge offering consumers the chance to have one-one-one interactions with the stores in their own home and Bergh noted Levi’s is seeing strong conversion rates. Buy-online-pickup-in-store is now available in 20% of stores and Levi’s plans to complete the rollout to the remaining U.S. stores in the coming months.
The retailer has also 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 will begin piloting same-day delivery.
“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,” said Bergh.
Levi’s has also been focusing on accelerating its overall digital transformation and how it leverages the use of data, analytics and machine learning in more aspects of its business.
“We are applying a data-driven approach to determining appropriate promotion levels,” said Bergh. “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.”
Despite that Levi’s revised CapEx estimate for 2020 is now around $160 million, substantially lower than the $200 million it originally guided for 2020, the retailer will still make tech investments.
Singh said in IT, it rebalanced its portfolio by cutting discretionary and non-urgent projects, while accelerating its digital transformation to drive a better consumer and employee experience. It will also continue its ERP rollout plans, as it believes this will help digitize all processes.
“We have and will continue to invest in future growth, while capital expenditures on stores or omni-channel and other digital initiatives, AI and data analytics, as well as the upgrade of our ERP,” Singh said.