Shopify announced on Tuesday that it was laying off 10% of its workforce because the company misjudged e-commerce growth.
Posted at 10:20am
Updated at 1:51 p.m
The Ottawa-based company’s CEO, Tobi Lütke, said in a blog post that most employees affected by the decision are in recruitment, support and sales.
Shopify will also eliminate “over-specialization” and “duplicate” positions, as well as certain groups that Lütke says are “practical but too far from product realization.”
Shopify didn’t specify the total number of workers affected by the cuts, but management’s latest information circular says the company had 10,000 employees and contractors at the end of 2021, including 3,000 who joined last year. Ten percent of that total would include 1,000 workers.
According to Lutke, the company is making the layoffs because the COVID-19 pandemic has caused demand for Shopify’s software to surge while consumers have started shopping more online.
Shopify bet that the number of purchases consumers would make online rather than in physical stores would be five or 10 years ahead of pre-pandemic predictions.
“We couldn’t know for sure at the time, but we knew that we had to expand the business accordingly if there was a chance,” explained Lütke.
“Now it is clear that this bet did not pay off. »
Shopify recently noticed that consumers are returning to their pre-pandemic shopping habits, they haven’t bounced back in five years, forcing the company to make cuts.
“Ultimately, this bet was my decision and I was wrong. Now we have to adapt,” said Lütke.
“As a result, we have to say goodbye to some of you today and I am deeply sorry. »
False assumptions are largely to blame for Shopify’s extravagance, noted GlobalData CEO Neil Saunders in a note to investors.
“Honestly, it was a major strategic mistake, fueled by insufficient understanding of customer behavior, lack of rigor in market analysis, and a bit of hubris,” he said.
More layoffs in the technology sector
But Shopify isn’t alone in laying off employees. In recent months, Wealthsimple, Klarna, Twitter and Netflix have all laid off employees as investor enthusiasm for tech stocks waned, annual inflation hit a near 40-year high and rumors of a recession surfaced.
Data aggregator Layoffs.fyi counted 401 global startups that have laid off a total of 57,552 employees so far this year.
Shopify’s stock price has fallen more than 70% from its late-2021 peak of $2,228.73 amid a broad market sell-off that has particularly weighed on the tech sector. The stock was trading at $40.19 on the Toronto Stock Exchange in the early afternoon, down more than 14% from the previous day’s close.
Those affected by the layoffs announced Tuesday will receive 16 weeks of severance pay, plus an additional week for each year of service at Shopify. The company will also eliminate the minimum amount of time employees must have worked before they can receive certain benefits.
Laid-off workers have access to career counseling, interview assistance, and resume writing services, and Shopify covers a portion of their internet access costs during the layoff.
Workers can also keep home office furniture, which the company provided an allowance for at the start of the pandemic. Shopify also provides a stipend that can be used to purchase new laptops.
But Shopify needs to do more than just lay off workers, Saunders pointed out.
“As Amazon grows its services to merchants and extends its solutions to businesses outside of its platform, Shopify needs to redouble its efforts to attract new businesses and retain existing customers using its services,” he said.