Saying he’s “deeply sorry,” Shopify Inc. CEO Tobi Lütke announced in a memo posted on the company website Tuesday morning that the e-commerce company will be going through “a reduction in workforce” that will see about 10 per cent of staff leave by end of day.
Most of the impacted roles are in recruiting, support and sales, Lütke wrote, adding that “we’re also eliminating over-specialized and duplicate roles, as well as some groups that were convenient to have but too far removed from building products.”
Lütke went on to explain that the company’s bet on pandemic e-commerce growth continuing has not panned out.
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“We bet that the channel mix — the share of dollars that travel through e-commerce rather than physical retail — would permanently leap ahead by five or even 10 years,” Lütke wrote.
“What we see now is the mix reverting to roughly where pre-COVID data would have suggested it should be at this point,” he continued. “Still growing steadily, but it wasn’t a meaningful five-year leap ahead. Our market share in e-commerce is a lot higher than it is in retail, so this matters. Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust. As a consequence, we have to say goodbye to some of you today and I’m deeply sorry for that.”
The company has about 10,000 employees worldwide.
Incorrect assumptions are largely to blame for Shopify’s follies, said Neil Saunders, managing director of GlobalData, in a note to investors.
“Put bluntly, this was a huge strategic mistake that was driven by an insufficient understanding of customer behaviour, a lack of rigour in analyzing the market, and a bit of hubris,” he said.
Shopify is not alone in laying off workers. Over the past few months, Wealthsimple, Klarna, Twitter and Netflix have all shed staff as investor exuberance around tech stocks has faded, inflation has soared to an almost 40-year high and recession rumours have loomed.
Data aggregator Layoffs.fyi has counted 401 startups that have laid off a collective 57,552 employees so far this year.
Amid a broad market sell-off that has particularly weighed on the tech sector, the price of Shopify’s stock has sunk more than 70 per cent since its late 2021 peak of $2,228.73. It dropped to just under $40 in mid-morning trading Tuesday.
Shopify is scheduled to release its second-quarter results Wednesday, with most analysts downgrading their expectations.
RBC Capital Markets analyst Paul Treiber told investors that he expected Shopify to revise its full-year expectations. The company previously suggested the number of merchants using Shopify’s software would be comparable to that of 2021 and that merchant solutions revenue growth would be more than twice the rate of subscription solutions revenue growth on a year-over-year basis.
In May, the company, which keeps its books in U.S. dollars, reported a first-quarter loss of US$1.5 billion or US$11.70 per diluted share on US$1.2 billion in revenue. The result compared with a profit of US$1.3 billion or US$9.94 per diluted share on US$988.6 million in revenue in the same quarter last year. At that time, it also announced a US$2.1-billion deal to buy logistics company Deliverr Inc. to assist in its battle with Amazon.
In June, in a somewhat controversial move, Shopify shareholders voted to solidify Lütke’s voting power for as long as he is at the company and ensure he, his family and affiliates hold 40 per cent of the company’s voting power. The approval received at Shopify’s annual general meeting ushered in a new corporate governance structure to grant Lütke non-transferable founder shares.
Most recently, Shopify said it is cutting the number of student internships it’s offering this fall as the company rethinks its hiring plans.
In a statement to OBJ, Shopify spokesperson Alex Lyons said the Ottawa-based firm will “continue to evaluate and hire for mission-critical roles, teams and skills to ensure we are best structured to support our millions of merchants. Our fall internship will continue with a reduced number of roles, which we have completed hiring for.”
Shopify needs to do more than cut workers, Saunders at GlobalData argued.
He wrote, “With Amazon ramping up its services to merchants and opening its solutions to businesses that are not part of its platform, Shopify needs to work harder to appeal to new businesses and retain those existing clients using its services.”
In his memo to staff Tuesday, Lütke remained committed to supporting Shopify’s customers.
“Our opportunity is massive and it’s still early days for Shopify,” he wrote. “Our customers are merchants, entrepreneurs and small business owners – the bedrock of our economy and precisely those that are typically hit hardest during recessions … We again have a clear objective in these challenging macro economic times and we will use everything we’ve got to help them succeed and come out stronger.
Lütke said Shopify will “grow into something more focused, more driven and more singular in mission. The times demand it of us and we will rise to the occasion once again.”
In recent weeks, Shopify has presented a series of product improvements and partnerships aimed at expanding its merchants’ reach. In April, the company reported that merchants who power their e-commerce sites on Shopify’s platform helped support five million jobs last year and generated more than US$444 billion in global economic activity – a 45 per cent jump from 2020. Canadian merchants on Shopify’s platform pumped US$23.8 billion into the country’s economy and helped create more than 142,000 jobs, according to the study conducted in partnership with Deloitte Canada.
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