Shopify says it will reduce its head count by about 20 per cent and sell its logistics business as it aims to reduce distracting “side quests” in the latest big change by the Ottawa-based tech company.
The changes come despite Shopify president Harley Finkelstein saying in February that there were no more cuts in the works.
Finkelstein told The Canadian Press on Thursday that the company has no further plans to cut more workers.
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“We think on the other side of this, we’re going to be in really, really good shape,” he said.
The e-commerce giant is selling its logistics business to Flexport, a supply chain management company. It announced the moves as a way to help it focus on its main goal: making commerce easier.
Achieving that feat means reducing “side quests,” which chief executive Tobi Lutke described as “always distracting because the company has to split focus.”
“Technological progress always arcs towards simplicity, and entrepreneurs succeed more when we simplify. But now we are at the dawn of the AI era and the new capabilities that are unlocked by that are unprecedented,” he said in an open letter announcing the changes.
“Our main quest demands from us to build the best thing that is now possible, and that has just changed entirely.”
Shopify’s share price closed up $14.60, or about 23 per cent, at $77.65 on the Toronto Stock Exchange.
The company refused to give the number of staff that would be departing the company, but it reported in a regulatory filing that it had 11,600 employees at the end of 2022. Twenty per cent of that amounts to about 2,300 people.
“I recognize the crushing impact this decision has on some of you, and did not make this decision lightly,” Lutke wrote.
Lutke promised departing staff at least 16 weeks of severance plus a week for every year of tenure at Shopify. Medical benefits and an employee assistance program will cover departing staff over the same period.
Those leaving will also be able to keep their office furniture and though they’ll have turn in their company laptops, Lutke said Shopify will help pay for new ones.
“It’s a hard day. This is not anything you want to do as a leader or as a company ever,” Finkelstein said.
“But sometimes the easy thing and the right thing are not the same thing and in this case, the hard thing happens to be the right thing.”
The changes will leave Shopify with “incredible talent density” and the ability to executive on its goals at a “much, much better speed, better pace and with better results,” he added.
“I’m more optimistic now than I think ever before about the future of this company,” he said.
In recent months, Shopify reduced the number of meetings staff have, split workers into two career tracks – managers and crafters – with equivalent compensation levels and gave employees a “total rewards wallet” last year that allows them to choose between cash and stock options for their compensation.
In addition to the staff departures, Lutke’s note announced the sale of Shopify Logistics, which it had marketed as a way for merchants to get products “from port to porch.”
Shopify did not announce the value of the deal, but said it will receive stock representing a 13 per cent stake in Flexport and the ability to name a director to Flexport’s board. When added to its previous stake in the company, Finkelstein said Shopify’s stake in Flexport is now in “the high teens.”
Some of Shopify’s logistics workers will move to Flexport, while others will be part of the layoff, chief financial officer Jeff Hoffmeister said on a conference call with financial analysts Thursday.
Flexport will become the official logistics partner for Shopify.
The transaction is expected to close in the second quarter of 2023, but is subject to certain conditions and regulatory approval.
Shopify’s announcements came as it reported it made US$68 million in the first quarter of the year. That compared with a net loss of $1.4 billion in the same period a year earlier.
Net income for the company, which reports in U.S. dollars, amounted to earnings of five cents per share compared with a loss of $1.17 cents per share a year ago.
Revenue for the period ended March 31 was up 25 per cent from the year before to $1.5 billion.
On the conference call with analysts to discuss the results, Finkelstein maintained that “Shopify is staying at the cutting edge of commerce,” in part because of its use of an AI in a shopping assistant it launched in March.
Shoppers tell the assistant what they are looking for, and the technology serves up relevant product recommendations from Shopify merchants.
“It’s like having your own shopping concierge powered by ChatGPT, one of the most advanced technologies that we have seen in decades,” Finkelstein said. “We believe that we are in the early innings of unlocking the true power of AI.”